NATIONAL ASSOCIATION OF REALTORS TITLE INSURANCE INFORMATION

WHAT IS TITLE INSURANCE?

Every property has a history of ownership outlined among local public records. When a property is sold, this history is reviewed to assure that the current seller has title and the right to sell the property.

The catch is that property records may not record all possible title claims. For instance, a prior owner may have been a drunk, drug user, bigamist, or lacking the mental capacity to sell a property interest. A lien against the property may have been missed in the title search.

Because of these and other problems, lenders require that buyers purchase title insurance (except in Iowa).

WHAT IS THE DIFFERENCE BETWEEN "OWNERS" AND "LENDERS" TITLE INSURANCE?

"Lender's" coverage is required by, well, lenders. It protects lenders against title defects up to the value of the outstanding loan amount -- less and less each year.

"Owner's" coverage protects against title defects up to the amount owed to the lender, plus the value of the owner's equity.  Some policies go further and increase in value with inflation. Ask your closing source for information.

Is owner's title insurance coverage a good idea? It is a one-time cost, and while it is likely to never be needed, if you do need it you will be elated to have it in place.

WHAT HAPPENS IF A TITLE PROBLEM IS FOUND AFTER I BUY A HOME?

If you have title insurance, the title insurance company will step in to defend your interests, including all legal costs.

If a title problem cannot be resolved, the title insurance company will pay off the mortgage if you have "lender's" coverage. You will lose whatever equity you have in the property.

If you have "owner's" coverage and you have a title problem that cannot be resolved, the title insurance company will pay off the mortgage and your down payment and loan amortization to date. Some title policies have an inflation clause so they will also pay any equity which has resulted from appreciation (higher market value).

WHERE CAN I FIND TITLE INFORMATION?

In most communities, there is a public records office where title information is maintained. In addition, a local property tax office is likely to have current information and will be able to direct you to other offices with such records.

CAN I DO MY OWN TITLE SEARCH?

You can certainly go through public records to look up the history of property ownership for a given parcel.

But, you cannot do your own title search as part of the loan process. Lenders want qualified, third-parties to review records to assure that all information regarding the property -- such as ownership and liens -- is known and that the title is good and insurable.

WHY ARE TITLE ISSUES COMPLEX?

Title issues are typically determined at the state level and how a home is titled can have significant tax, estate, liability, and financial implications.

For instance, you can have a tenancy by the entireties (for married couples), community property, a tenancy in common (where interests need not be equal), a joint tenancy (where all interests are equal), etc. Then, you can have right of survivorship built-in or not built-in, you can have a written agreement among the parties to organize the owners, you can have condo and co-op regimes to govern ownership, equity-sharing agreements can impact title issues, and then you can gain ownership more or less with a quitclaim deed -- the owner transfers such interest as he has in the property (which may be no interest). Add in partnerships, corporations, non-profit entities, and title matters become unbelievably complex. And don't forget deed restrictions....

Because title issues are central to real estate ownership, such matters should be handled with care. Please see an attorney or legal clinic for details.