Do you really need title insurance? Is it a necessity or an added to cost when buying or selling a home? You may not think much about it, but carrying title insurance has its benefits, not just to the homeowner, but to everyone involved in the sale and purchase of a home.

To the Purchaser of Real Estate: The purchaser of real estate needs protection against serious financial loss due to a defect in the title to the property purchased. For a single, one-time premium, which is a modest amount in relationship to the value of the property, a buyer can receive the protection of a title insurance policy - a policy that is backed by the reserves and solvency of the Company. A title insurance policy will cover both claims arising out of title problems that could have been discovered in the public records, and those so-called "non-record" defects that could not be discovered in the record, even with the most complete search.

A title insurance policy will not only protect the insured owner, but also that person's heirs for as long as they hold title to the property, and even after they sell by warranty deed. The Company will not only satisfy any valid claim made against the insured's title, but it will pay for the costs and legal expenses of defending against a title claim.

To the Lender: The overwhelming majority of mortgage loans made in the United States are made by persons who are acting in a fiduciary capacity - by savings and loan associations, savings banks, and commercial banks on behalf of their depositors, and by life insurance companies on behalf of their policyholders. Because they are lending other people's money (other people's savings or policyholder's funds) these lenders must be concerned with the safety of their mortgage investments.

A policy of title insurance provides a mortgage lender with a high degree of safety against the loss of security as a result of a title problem. This protection remains in effect for as long as the mortgage remains unsatisfied.

To the Seller: An owner of real property whose interest is insured by an owner's title insurance policy has the assurance that the title will be marketable when selling the property. The title insurance policy protects the seller from financial damage if the seller's title is rejected by a prospective purchaser. Also, when the seller conveys with "warranties," which is traditional, the seller is still protected if the buyer sues because of a breach of those warranties.

To the Real Estate Attorney: Title insurance enables the real estate attorney to provide the client with substantially greater protection than would be afforded by the attorney's opinion alone. The attorney's opinion is only limited to recorded matters and the client can only recover from the attorney if the attorney is found to be negligent.

To the Real Estate Broker: The title insurance company and the real estate agent both seek to ensure that as many purchases as possible are closed to the satisfaction of all the principals in the transaction. From the broker's standpoint, the efficient and safe transfer of title will result in client satisfaction, increased prestige, and continued business.

Apart from the security that title insurance offers, most brokers have experienced numerous instances in which title insurance personnel have enabled them to close transactions that otherwise would have been delayed.

To the Home Builder: By providing various title insurance services and information to the home builder, the title insurance industry can and does assist the builder in identifying and evaluating building and use restrictions, easements, etc., in removing title problems that may arise, and in facilitating prompt and needed disbursement of construction funds from the construction lender. All of these services ultimately rebound to the benefit of the buyers of newly constructed homes.

When selling or buying a home, consider purchasing title insurance for security in the sale.



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The need for title insurance arose historically from the fact that traditional methods of conveying real property did not provide adequate safety to the parties involved. Until a century ago, transferring title to real property was handled primarily by conveyancers, who were responsible for all aspects of the transaction. The conveyancer conducted a title search to determine the ownership rights of the seller and any other rights, interests, liens or encumbrances that might exist with respect to the property, and, based on its search, provide a signed abstract (or description) of the status of the title. Although the conveyancer was generally not a lawyer, that individual was recognized as an authority on real estate law. The origin of title insurance is directly traceable to the limited protection that the work of such a conveyancer provided to the purchaser of real property.

In 1868, the celebrated case of Watson v. Muirhead (57 Pa. 161) was filed in Pennsylvania. In that case, Muirhead, a conveyancer, had searched and abstracted a title for Watson, the purchaser of a parcel of real property. In good faith and after consulting an attorney, Muirhead chose to ignore certain recorded judgments and to report the title as good and unencumbered. On the basis of Muirhead's abstract, Watson went ahead with the purchase, but was subsequently presented with, and require to satisfy, the liens that Muirhead had concluded were not impairments to title. Watson sued Muirhead to recover his losses, but the Pennsylvania Supreme Court ruled that there was no negligence on the conveyancer's part and dismissed the case. Watson, an innocent purchaser who had suffered financial damages because of the encumbrances on his title, had no recourse.

The decision of Watson v. Muirhead demonstrated clearly that the existing conveyancing system could not provide total assurance to purchasers of real property that they would be safe and secure in their ownership. As a result of that decision, the Pennsylvania legislature shortly thereafter passed an act "to provide for the incorporation and regulation of title insurance companies." The first title company was founded in Philadelphia in 1876.

This new type of insurance (called "title insurance"), addressed the concerns raised in Watson v. Muirhead by providing:

1. Responsibility without proof of negligence;

2. Financial protection through a reduction of the risk of insolvency; and

3. The assumption of risks beyond those disclosed in the public records (for which the abstractor was not liable).

Since the late 1800s, the title insurance industry has grown to where it now is an essential component in an overwhelming majority of real estate transactions in this country. The services provided by the title insurers may vary somewhat from one area of the country to the other, reflecting the different laws, customs and procedures of the various states and counties throughout the nation. But the essential purpose of these services is the same - to assist all of the parties in real estate transactions by ensuring that the acquisition or transfer of an interest in real estate can be effected with a maximum degree of efficiency, security and safety.



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Protecting your Home Investment

A home is usually the largest single investment any of us will ever make. When you purchase a home, you will purchase several types of insurance coverage to protect your home and personal property. Homeowner's insurance protects against loss from fire, theft, or wind damage. Flood insurance protects against rising water. And a unique coverage known as title insurance protects against hidden title hazards that may threaten your financial investment in your home.

Protecting Your Largest Single Investment

Title insurance is not as well understood as other types of home insurance, but it is just as important. You see, when purchasing a home, instead of purchasing the actual building or land, you are really purchasing the title to the property - the right to occupy and use the space. That title may be limited by rights and claims asserted by others, which may limit your use and enjoyment of the property and even bring financial loss. Title insurance protects against these types of title hazards.

Other types of insurance that protect your home focus on possible future events and charge an annual premium. On the other hand, title insurance protects against loss from hazards and defects that already exist in the title and is purchased with a one-time premium.

Two Kinds of Title Insurance Benefit You in Two Ways

There are two basic kinds of title insurance:

* Lender or mortgagee protection,
* Owner's coverage.


Most lenders require mortgagee title insurance as security for their investment in real estate, just as they may call for fire insurance and other types of coverage as investor protection. When title insurance is provided, lenders are willing to make mortgage money available in distant locales where they know little about the market.

Owner's title insurance lasts as long as you, the policyholder - or your heirs - has an interest in the insured property. This may even be after you have sold the property.

Depending on local practices and state law where the property is located, you may pay an additional premium for an owner's policy or you may pay a simultaneous issue charge - usually a smaller amount - for the separate lender coverage. You may even split settlement costs with the seller for the lender or owner's policy.

What does Your Premium Really Pay For?

An important part of title insurance is its emphasis on risk elimination before insuring. This gives you, as the policyholder, the best possible chance for avoiding title claim and loss.

Title insuring begins with a search of public land records affecting the real estate concerned. An examination is conducted by the title agent or attorney on behalf of its underwriter to determine whether the property is insurable. The examination of evidence from a search is intended to fully report all "material objections" to the title. Frequently, documents that don't clearly transfer title are found in the "chain," or history that is assembled from the records in a search. Here are some examples of documents that can present concerns:

* Deeds, wills and trusts that contain improper wording or incorrect names;
* Outstanding mortgages and judgments, or a lien against the property because the seller has not paid his taxes;
* Easements that allow construction of a road or utility line;
* Pending legal action against the property that could affect a purchaser; or
* Incorrect notary acknowledgments.


Through the search and the examination, title problems are disclosed so they can be corrected whenever possible. However, even the most careful preventative work cannot locate all hidden title hazards.

Hidden Title Hazards - Your Last Defense

In spite of all the expertise and dedication that go into a title search and examination, hidden hazards can emerge after closing, resulting in unpleasant and costly surprises. Some examples of hazards include:

* A forged signature on the deed, which would mean no transfer of ownership to you;
* An unknown heir of a previous owner who is claiming ownership of the property;
* Instruments executed under an expired or a fabricated power of attorney; or
* Mistakes in the public records.


Title insurance offers financial protection against these and other covered title hazards. The title insurer will pay for defending against an attack on title as insured, and will either perfect the title or pay valid claims. All for a one-time charge at closing.

Your home is your most important investment. Before you go to closing, ask about your title insurance protection, and be sure to protect your home with an owner's title insurance policy.



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