Title Insurance protects against persons claiming a right, lien or encumbrance against the subject property.

Title insurance companies are in business to make sure your rights and interests to the property are clear, that transfer of title takes place efficiently and correctly and that your interests as a home buyer are protected to the maximum degree. Title insurance companies provide services to buyers, sellers, real estate developers, builders, mortgage lenders and others who have an interest in real estate transfer. Title companies routinely issue two types of policies – “owner’s,” which covers you, the home buyer; and “lender’s,” which covers the bank, savings and loan or other lending institution over the life of the loan. Both are issued at the time of purchase for a modest one-time premium. Before issuing a policy, however, the title company performs an extensive search of relevant public records to determine if anyone other than you has an interest in the property. Once a title policy is issued, if for some reason any claim which is covered under your title policy is ever filed against your property, the title company will pay the legal fees involved in defense of your rights, as well as any covered loss arising from a valid claim.

Title insurance: as a home buyer, the term is probably familiar – but is it understood? What is your dollar actually paying for when you purchase a title policy?

Title insurers, unlike property or casualty insurance companies, operate under the theory of risk elimination. Title companies spend a high percentage of their operating income each year collecting, storing, maintaining and analyzing official records for information that affects title to real property.

Their technical experts are trained to identify the rights others may have in your property, such as recorded liens, legal actions, disputed interests, rights of way or other encumbrances on your title.

This theory is different from that of most other insurance where, for example, rates and anticipated losses are based on actuarial studies and premiums are pooled on the assumption that a certain number of claims will be made.

The distinction is important: title insurance premiums are paid to identify and eliminate potential risks and claims before they happen. The enhanced policy covers future events.

Medical and casualty insurance premiums, for example, are paid to insure against an unpredictable future event, knowing that risks exist and claims will occur.

Furthermore, title insurance involves a one-time premium, paid when you close the real estate transaction, while property, casualty and medical insurance require regular renewal premiums.

The goal of title companies is to conduct such a thorough search and evaluation of public records that no claims will ever arise. Of course, this is impossible – we live in an imperfect world, where human error and changing legal interpretations make 100 percent risk elimination impossible. When claims arise, professional claims personnel are assigned to handle them according to the terms of the title insurance policy.

Buying or selling a home (or other piece of real property) usually involves the transfer of large sums of money. It is imperative that the transfer of these funds and related documents from one party to another be handled in a neutral, secure and knowledgeable manner. For the protection of buyer, seller and lender, the escrow process was developed. As a buyer or seller, you want to be certain all conditions of sale have been met before property and money change hands.

The technical definition of an escrow is a transaction where one party engaged in the sale, transfer or lease of real or personal property with another person delivers a written instrument, money or other items of value to a neutral third person, called an escrow agent or escrow holder. This third person holds the money or items for disbursement upon the happening of a specified event or the performance of a specified condition.

Simply stated, the escrow holder impartially carries out the written instructions given by the principals. This includes receiving funds and documents necessary to comply with those instructions, completing or obtaining required forms and handling final delivery of all items to the proper parties upon the successful completion of the escrow.

The escrow must be provided with the necessary information to close the transaction. This may include loan documents, tax statements, fire and other insurance policies, title insurance policies, terms of sale and any seller-assisted financing, and requests for payment for various services to be paid out of escrow funds.

If the transaction is dependent on arranging new financing, it is the buyer’s or his agent’s responsibility to make the necessary arrangement.

Documentation of the new loan agreement must be in the hands of the escrow holder before the transfer of property can take place.

A real estate agent can help identify appropriate lending institutions.

When all the instructions in the escrow have been carried out, the closing can take place. At this time, all outstanding funds are collected and fees such as title insurance premiums, real estate commissions, and termite inspection charges are paid. Title to the property is then transferred under the terms of the escrow instructions and appropriate title insurance is issued.

Payment of funds at the close of escrow should be in the form acceptable to the escrow, since out-of-town and personal checks can cause days of delay in processing the transaction.

The following items represent a typical list of what an escrow holder does and does not do:

The escrow holder:

The escrow holder does not:

How should I take ownership of the property I am buying?

Because real property has become increasingly more valuable, the question of how parties take ownership of their property has gained greater importance. The form of ownership taken – the vesting of title – will determine who may sign various documents involving the property and future rights of the parties to the transaction. These rights involve such matters as real property taxes, income taxes, inheritance and gift taxes, transferability of title and exposure to creditor’s claims. Also, how title is vested can have significant probate implications in the event of death.

Buyers may wish to consult legal counsel to determine the most advantageous form of ownership for their particular situation, especially in cases of multiple owners of a single property.

Common Methods Of Holding Title

Sole Ownership
Sole ownership may be described as ownership by an individual or other entity capable of acquiring title. Examples of common vesting in cases of sole ownership are:

1. A Single Man/Woman: A man or woman who has not been legally married. For example: Bruce Buyer, a single man.

2. An Unmarried Man/Woman: A man or woman who was previously married and is now legally divorced. For example: Sally Seller, an unmarried woman.

3. A Married Man/Woman as his/her Sole and Separate Property: A married man or woman who wishes to acquire title in his or her name alone.

The title company insuring title may require the spouse of the married man or woman acquiring title to specifically disclaim or relinquish his or her right, title and interest to the property. This establishes that it is the desire of both spouses that title to the property is granted to one spouse as that spouse’s sole and separate property. For example: Bruce Buyer, a married man, as his sole and separate property.

Co-Ownership

Title to property owned by two or more persons may be vested in the following forms:

1. Joint Tenancy: A form of vesting title to property owned by two or more persons, who may or may not be married, in equal interest, subject to the right of survivorship in the surviving joint tenant(s). Title must have been acquired at the same time, by the same conveyance, and the document must expressly declare the intention to create a joint tenancy estate. When a joint tenant dies, title to the property is automatically conveyed by operation of law to the surviving joint tenant(s). Therefore, joint tenancy property is not subject to disposition by will. For example: Bruce Buyer and Barbara Buyer, husband and wife as joint tenants.

2. Tenancy in Common: A form of vesting title to property owned by any two or more individuals in undivided fractional interests. These fractional interests may be unequal in quantity or duration and may arise at different times. Each tenant in common owns a share of the property, is entitled to a comparable portion of the income from the property and must bear an equivalent share of expenses. Each co-tenant may sell, lease or will to his/her heir that share of the property belonging to him/her. For example: Bruce Buyer, a single man, as to an undivided 3/4 interest and Penny Purchaser, a single woman, as to an undivided 1/4 interest, as tenants in common.

Other ways of vesting title include as:

1. Corporation: A corporation is a legal entity, created under state law, consisting of one or more shareholders but regarded under law as having an existence and personality separate from such shareholders.

2. A partnership: A partnership is an association of two or more persons who can carry on business for profit as co-owners, as governed by the Uniform Partnership Act. A partnership may hold title to real property in the name of the partnership.

3. **A Trust: A trust is an arrangement whereby legal title to property is transferred by the grantor to a person called a trustee, to be held and managed by that person for the benefit of the people specified in the trust agreement, called the beneficiaries.

**In cases of corporate, partnership or trust ownership the title company will require that it be furnished legal documents so that it may satisfy itself as to ownership rights of the parties to the transaction and any limitations which may exist on the sale, transfer or encumbrance of the property.

Required documents may include corporate articles and by-laws, certificates of partnership and trust agreements.

Remember: How title is vested has important legal consequences. You may wish to consult and attorney to determine the most advantageous form of ownership for your particular situation.

Why do you need to buy title insurance again even though you purchased a policy when you first bought your home and there is no change in ownership?

It’s because a separate policy is needed by the lender insuring the validity of your mortgage when it is made.

For as long as you own the property your mortgage is valid, but it doesn’t insure the new mortgage created when you refinance, and it doesn’t provide protection against events that may have transpired between the time you purchase the property and when it is refinanced.

For example, you may have taken out a second mortgage on the home that could threaten the priority of the new lender’s mortgage. Or, there could be legal judgments against you or a mechanic’s lien against the property by a supplier who wasn’t paid for home improvements.

Lenders also insist on a new title policy because many mortgages are packaged as securities and sold to investors in the secondary mortgage market. Title insurance is the only practical way to provide the assurance investors demand and to ensure that the mortgages backing these securities are valid and enforceable.