Title Insurance FAQ
What is Title Insurance?
When ownership of a property is transferred, it is customary in this area for the seller to provide the buyer a policy of title insurance, ensuring the ownership is being transferred free of known defects or encumbrances. Title insurance is a policy that guarantees to the holder that there are no claims against the ownership of the insured real estate as of the effective date of the policy, excluding those exceptions listed in the policy. The policy ensures that if the status of the title to the subject real estate is other than has been represented, and the insured suffers a loss as a result of a defective title, the insurer will reimburse the insured for that loss and any related legal expenses up to the face value of the policy.
What is a Title Search?
A title search is a search of the public records to uncover information about the subject property. This is the first thing done by a title company in the process of issuing a title policy in order to eliminate the risks caused by defective titles.
What is a Commitment for Title Insurance?
A Commitment for Title Insurance is issued once the title search is complete, describing everything that was uncovered during the search. The commitment is also a binder promising to issue a title policy once the requirements laid out in the commitment are met. The requirements may include provisions such as recording a properly executed deed from the current owner and payoff and recording the satisfaction of the current mortgage.
What is a Policy of Title Insurance?
The policy of title insurance is issued after all required documents have been recorded in the county courthouse. The policy guarantees the new owner that all requirements in the commitment have been met. It also guarantees there are no ‘hidden’ encumbrances on the title. The holder of the policy is insured that there are no recorded liens or encumbrances on the property unless otherwise stated in the exceptions to the policy. There are two types of title insurance policies. The Loan policy insures the lender, while an Owner’s policy insures the purchaser.
What is a Loan Policy of Title Insurance?
The loan policy of title insurance is issued to the lender in a property transaction. This policy assures the quality of the title, which the purchaser pledges as security for the loan. The loan policy protects the lender against loss due to defective titles. The loan policy does not protect the purchaser from title defects. The purchaser insures his interest through an Owner’s Policy of Insurance.
What is an Owner’s Policy of Title Insurance?
The owner’s policy of title insurance is issued to the purchaser in a property transaction. This policy is not required by lenders, but gives you, the purchaser, the same guarantees given the lender through the loan policy. Is this important? What if a previously uncovered matter arises affecting the past ownership of your property? The title insurance company will only defend the interest of the lender if you are not covered. Your legal expenses to defend your claim will be your responsibility. In case of a loss, the title insurance company will cover the loss to the lender. The uninsured owner is out his down payment, any accumulated equity, his home and property, and he is still responsible for the unpaid balance of the loan. This is why you need an owner’s policy which can be issued at the same time as the loan policy for a small additional fee
How can there be title defects if a loan policy has already been issued?
Title insurance is only issued after a careful examination of public records. However, even the most thorough of searches may not uncover all title defects. In addition to defects present in the public records, other problems may exist which cannot be disclosed by a search of the public records. These defects are called hidden risks and include such things as forged deeds and misinterpreted wills.
What hidden risks does title insurance protect against?
Here are some of the hidden risks that can cause an encumbrance on your title:
Forged deeds, releases or wills
False impersonation of the true owner of the property
Liens for unpaid property, income, inheritance or gift taxes
Undisclosed or missing heirs
Instruments executed under invalid power of attorney
Mistakes in recording documents
Misinterpretation of wills
Deeds by persons of unsound mind
Deeds by minors
Deeds by supposedly single persons who are in fact married
What protection does title insurance provide against defects and hidden risks?
Title insurance will provide for defending against any lawsuit against your insured title and will either clear up the title problems or pay the insured’s loss. An owner’s title insurance policy protects you for as long as you or your heirs retain the property.
What is an Extended Coverage Title Insurance Policy?
The Extended Coverage Title Policy offered by Alabama Land Services, Inc. provides greater title insurance coverage for homeowners. The Extended Coverage policy offers both pre- and post- policy coverage against most forgeries, liens for unauthorized and unpaid materials and labor costs, and building encroachments other than boundary walls or fences. This policy expands the right of access coverage to include the existence of pedestrian and vehicular access over adequate roads. Also covered are violations of restrictive covenants and building permit violations. The Extended Coverage policy covers homeowners if existing buildings must be removed because they encroach on neighboring property or into an easement. Coverage also extends to subdivision law violations if the violation existed on the date of purchase and to zoning law violations. This policy provides coverage if a homeowner’s existing house is damaged during the exercising of water or mineral rights. Protection is afforded homeowner’s from unforeseen real estate taxes not previously assessed. The Extended Coverage policy also adds value protection by increasing the coverage as the value of the house increases. The policy amount automatically increases by 10 percent a year for five years up to 150 percent of the original policy limit. This policy has been adopted by the Alabama Land Title Association and certain limitations and exclusions that apply.