You are buying a home. You may have gotten qualified for a FHA loan, Conventional loan or maybe a VA home loan. Additionally, you have looked far and wide for the perfect home for you and/or your family and you have finally found it. Congratulations!
Your real estate agent takes out his or her iPad, notepad, notebook or old school paper contract, turns to you and says “do you have a preference on a title company?” Huh? you say. “What’s a title company?” you ask. Your real estate agent says “well, a title company is going to provide title insurance on your home – it’s to protect you!” “huh – insurance”, you say, – on what? Welcome to the world of title insurance. Hello, my name is Stephen Garner. I am the director of sales technology for Lawyers Title in Phoenix Arizona. I’ve spent over 10 years in the title industry helping real estate professionals – real estate agents and loan officers – grow their business.
You may have car insurance, health insurance, even insurance on electronics (don’t buy it – it’s a waste) so what in the world is title insurance and while we are on the subject, what is a title company? [Big breath in]
Wikipedia: “Title insurance in the United States is indemnity insurance against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage liens. Title insurance is principally a product developed and sold in the United States as a result of the comparative deficiency of the U.S. land records laws. It is meant to protect an owner’s or a lender’s financial interest in real property against loss due to title defects, liens or other matters. It will defend against a lawsuit attacking the title as it is insured, or reimburse the insured for the actual monetary loss incurred, up to the dollar amount of insurance provided by the policy. The first title insurance company, the Law Property Assurance and Trust Society, was formed in Pennsylvania in 1853.[1] The vast majority of title insurance policies are written on land within the U.S.. . . .nearly all institutional lenders also require title insurance to protect their interest in the collateral of loans secured by real estate.”
Huh? I know, confusing huh. Well, let me see if I can break it down a little more for you. Title insurance protects your ownership of real estate [your home, condo, town home, land, etc.] It protects you against claims from a previous owner, their family and/or heirs, that may have rights to the home you are buying. Others that could have an interest or lien against the home you are buying [including but are not limited to] contractors, lenders, the IRS, creditors, government agencies or bodies, other individuals – even corporations. The home you are buying could be sold to you without your knowledge of a right or a claim from another person or entity. These rights or claims remain attached to the title to the home you are buying until they are eliminated or removed.
If you are like me, you think of insurance as something to protect you against future loss [car insurance, home insurance, flood insurance, life insurance, etc.] What’s different about title insurance is that it offers you protection from future claims and/or losses against defects in title that have, unknown to you, already happened BEFORE you purchased the property. A home is the largest purchase most of us ever make, that is why it is very important that you get clear title to the property you are buying. In order to get clear title, you need to be educated and advised as to the existence of any rights or claims that could [in the future] be a threat to the title of your property. Title insurance provides you with these protections.
In order to discover these threats to title a title company will search the public records for any documents associated with the property you are buying. The title company will carefully examine any recorded documents to determine if anyone could have a rights or claim against the title of your property. This is called a title search. The title search should discover the existence of any recorded liens, encumbrances or other defects,on the title to the property you are buying such as unpaid mortgages, judgments, tax liens or other taxes against the current or past owner. Any defects in title will be reported to you before you purchase the property. You can then make an educated decision as to whether or not you wish to continue with the transaction. The title company will then issue you a title insurance policy that will protect you against the loss or damage due to the recorded liens, encumbrances or other defects.
As a smart consumer you are naturally wondering “what if a claim is made against my property” right? Great question! If a claim is made against the title to your property, the title insurance company will step up and protect you by guarding or defending your title or settling and paying the claim. All this so you can keep possession of your property. Pretty cool huh?
And now you know. And knowing is half the battle. Oh, one more thing. In the Phoenix metro area, there are over 60 title companies. As with other services, they are not all created the same. Next you will want to know How To Choose A Title Company right? Here we go again [big breath in….]
