Risk elimination, the true function of title insurance, begins with examining the title of the property to be sold. Examining title relies heavily on the title search performed before any title insurance is issued.
The search, conducted by an experienced title agent is in general, a search of public records to see if any defects are found that will affect the title to the real estate property in question.
Types of records and defects
Through careful examination of all records from county, municipal and data storehouses maintained by the title industry, the chain of history of the property is established. Deeds, trusts and wills are examined in a search for incorrect names (or improper vestings). Outstanding tax bills, mortgages and judgments are searched, as are property
boundaries and easements. Incomplete or incorrect notary acknowledgments are noted during the title examination as well. Such a title examination of evidence is conducted to be as sure as possible that all material objections to a title have been reported.
When all information available has been gathered, the title company will declare the title “Marketable” (clear of all encumbrances and ready to proceed to closing) or “Insurable”, once the listed defects or hazards have been either been cleared or deemed be harmless to the future validity of the title.
Title Insurance Policies
Title insurance is issued to the buyer as an Owner Title Insurance Policy, protecting the buyer from any defects that may rise from the property's chain of history that don’t surface until after the sale has gone through. Such a policy not only
protects the buyer from financial loss, but the title company will accompany the buyer into court to defend any claim against the title.
Also the mortgage lender may insist on a Lender (or Loan) Title Insurance Policy. In this policy, the institution’s financial investment is covered in much the same way as in the Owner Title Policy, against disclosure of any defect from the property’s history being found in the future and causing
problems for the title.
A thorough and extensive procedure of examining the title, through a comprehensive title search, is the best defense for all parties concerned with having a smooth sales transaction at present and avoiding title difficulties in the future.
Visit www.alta.org to learn more about examining title.