During the course of a purchase you see and hear the term title insurance but if not explained your understanding of it may fall to the way side. Here is a brief description of what title insurance is and how it can effect you and your purchase or sale.
Title Insurance is a comprehensive insurance policy under which a title insurance company warrants to make good a loss arising through the defects in title to real estate or any liens or encumbrances thereon. Unlike other types of insurance, which protect a policy holder agains loss from some future occurrence, title insurance in effet protects a policy holder against loss from some occurrence that has already happened, such as a forged deed somewhere in the chain of title.
Needless to say, a title company will NOT insure a bad title any more than a fire insurance company will insure a burning building. However, if upon investigation of the public recordas and all other nmaterila facts, the title company feels that is has an insurable title, it will issue a policy. Generally a title insurance policy will protect the insuraed agains lossess arising from such title defects, “hidden risks” as the flowing: Forgery/ Undisclosed heirs; lack of capacity (minors)/Mistaken legal interpretation of wills/Misfiled documents, unauthorized signatures/Confusion arising from similarity of names/ Incorrectly given marital status or mental incompetence.
The title company will agree to defenc the policy holders title in court agains any lawsuits that may arise from defects covered in the policy.
You should be aware of this:
Title indemnity is made as of a specific date except with pertain policies, a one-time premium is paid and coverage continues until the property is conveyed to a new owner. Title insurance does not run with the land. Coverage is thus limited to the tenure of the named insured, or as long as the insured has liability because of covenants of warranty from a deed of conveyance issued in the past.
In Hawaii most loans secured by real estate have been made by, or assigned to, out of state investors who are not in a position to easily make an onsite inspection of the property in question. Because of this the American Land Title Association (ALTA) extended coverage policy was developed so that only certain companies who were members of the association, and who conformed to certain standards, could insure the subject properties. Since the insurance company theoretically would issue such a policy only after it obtained a complete search of the records a competent survey and a physical inspection of the property, many insured real estate owners or lenders feel that an insurable title is a marketable title.
There are two major types of title insurance.
1.Onwers policy- AN owners policy is issued for the benefit of the owner. It is NOT transferable or assumable, and is a one time fee based on the full purchase price. If there is a change in owners, the new purchaser would need to obtain a new policy. For an added premium, title companies will issue an extended coverage owners policy for certain properties to cover possible title defects excluded from standard coverage. Such title defects may include the rights of parties in possession, in questions of survey and unrecorded liens.
2.Lendres policy-ALso called a mortgagee’s policy, this policy is issued for the benefit of a mortgage lender. It protects the lender against the same defects as an owner is protected agains under an owners policy (plus additional defects) but the liability of the company issuing the policy is limited to the mortgage loan balance as of the date of the claim. In other words, liability under a lenders ploy reduces with each mortgage payment as is voided when the loan is completely paid off and released. Because of this reduce liability, a lenders policy usually costs less than an owners policy. Since the policy is for the protection of the lender, and offers protection up to the unpaid decreasing balance of the mortgage, if a buyer were to buy by way of assumption of the existing mortgage the policy would then also be assumable. This policy too, is a one time fee.
Title insurance policies usually do NOT cover such risks as defects in boundaries and survey encroachments, unrecorded easements, unrecorded mechanics liens, taxes and assessments no yet due or payable, zoning and governmental regulations, certain water and mining claims, loss of land due to accretion, avulsion or erosion, rights of parties in possession ( oral or unrecorded leases, unrecorded contracts of purchase, those claiming title by adverse possession, etc) and any facts, rights, interests, or claims which are not shown by the public record, but which could be disclosed by a surveyor’r report obtained through an inspection of the land ( an encroachment)
Local practice and custom here in Hawaii suggests that the seller pay for 60% of the cost of a standard coverage policy for the buyer while the purchaser pays 40% of the premium for standard coverage title insurance plus any additional costs relating to the issuance of an extended coverage policy ( including a lenders policy) Title insurance may be required by custom, even where the title is registered in the Torrens System (Land Court) to protect against items not shown on the transfer certificate of title (unrecorded liens, such as federal tax liens) Note that if an insured property appreciates in value, or when an expensive improvement is made, it is a good practice to increase the amount of title insurance to cover possible increased losses. Newer policies have an “inflation guard” endorsement to cover appreciation.