Whether you're a new home buyer or a homeowner, an introduction (or refresher) on the ins and outs of titles is always helpful!
What is a title?
A title is the evidence of right which a person has to the ownership and possession of land.
A title company is chosen by the buyer and/or seller (often at the recommendation of their real estate agent). They research the property, checking public records for title defects, prepare the closing paperwork, provide the escrow officer who manages the closing and sometimes disburses payment.
What is a defect in the title, or title defect?
A defect in the title can be any legal right held by someone other than the owner to claim property or to make demands on the owner of that property. When researching a property, title companies check public records for defects and information like liens and ownership. For example, if a wife and husband share ownership, do both need to sign to sell? It depends on your state - but your title company can tell you!
When you purchase real property, you will receive a written document (called “the deed”) which transfers the ownership (title) of the property to you as the purchaser.
What is title insurance?
Title insurance is insurance against loss from defects in title to real property and from the invalidity or unenforceability of mortgage liens. It will cover you if a problem regarding title defects or legal ownership arises that was not discovered during the title search. For example, some fraud or identity theft may create defects that cannot be found during a search of public records.
Title insurance, and the search and examination process that takes place before a policy is issued, assures the home buyer that the title to their property is clear, and that they are protected from any future challenges to their title. It protects the buyer’s home investment and assures the buyer that the property is really his or hers.
There are two types of title insurance:
- Owner's Policy: An owner’s policy insures the purchaser that the title to the property is free from defects, except those which are listed as exceptions in the policy. It is normally issued in the amount equal to the real estate purchase price and remains in effect for as long as the owner or their heirs retains an interest in the property.
- Loan/Mortgage/Lender Policy: The lender’s policy is separate from the owner’s policy. It assures the validity and enforceability of the lien of the lender’s mortgage or deed of trust and serves as protection for the lender’s security interest in the property. A Loan Policy is issued to the lender in the amount of the loan, and liability decreases as the mortgage debt is reduced.
The difference between a Loan Policy and an Owner’s Policy is the length that each policy stays in effect. A Loan Policy expires when the loan is paid in full and an owner’s policy protects the owner’s in the property for as long as they or their heirs have an interest in the property.
Thank you to Kansas City Title, a member of the ReeceNichols family of services!