What Is Title Insurance and Do I Need It?
Title insurance protects the policy holder’s ownership rights. When you buy a home, you become “entitled” in the sense that your name goes on a piece of paper stating you officially own the property (the deed). This deed is recorded at the courthouse, and tells everyone the land belongs to you and your heirs forever, unless you sell the property or it is foreclosed upon or seized by some kind of government action.
Before you bought the property, someone else owned it, and they also have a deed in the courthouse. Similarly, someone else owned that same property prior to that, and so on, stretching all the way back to the colonial era when the land was first given to William Penn by King Charles II of England back in 1681.
Between 1681 and now, property in Pennsylvania has changed hands many times, and because of this, sometimes mistakes are made. These mistakes can cause a dispute about the identity of the rightful owner of a piece of property and sometimes these disputes can become very complex and threaten your rights to the property!
Sometimes, there are errors in deeds like incorrect property descriptions, incorrect names, incorrect prices, and most importantly, missing information about who exactly is entitled to the specific rights inherent in the land. For instance, some people will sell their mineral rights, but retain their rights to occupy the surface. But, evidence of these transfers is difficult to locate and may not have been recorded properly. It’s entirely possible you could buy a house on a piece a land where the right to mine the coal was sold back in the early 19th century. That’s not a big deal so long as the entity or person who bought those rights to mine coal doesn’t suddenly decide to start digging under your basement!
Commonly, a seller fails to disclose a loan or lien on the property. This would mean you may end up having to pay their bills after closing. Another problem is when a seller lies about being the sole owner. For example, when adult children try to sell a parent’s home, or when an ex-husband or ex-wife tries to sell the family home prior to a divorce settlement without notifying the other party.
There are many other problems that can cloud the title; see the list below for details. Title insurance protects you in two different ways. First, the title insurance company employs a knowledgeable attorney to check through all the records to make sure the title to the property is clean. When a title is clean, there are no clouds. Whether or not the title is clean or clouded is always an opinion of a knowledgeable researcher, and it’s always possible they’re wrong. They will catch the vast majority of issues prior to closing so you almost certainly won’t have any nasty surprises after you move in.
Second, the insurance company issues you a policy which says that they will compensate you if your right to own the property is ever challenged as a result of some kind of mistake or problem they didn’t catch.
Title insurance is paid for via a onetime premium at the closing. There are no additional payments, and the term lasts as long as you or your heirs own the property. If you are using a mortgage to buy the house, your mortgage company will also get a title insurance policy so that if you were to lose the property, or lose some portion or use of the property due to some kind of title dispute, they’ll use the insurance money to pay off the mortgage. Mortgage lenders always get title insurance because they want to protect their investment in the property, so I always recommend title insurance in every case, even new construction.
The cost of title insurance is regulated by the Commonwealth of Pennsylvania, so it costs the same no matter which company issues your policy. The price is determined by the sale price of the property. That said, some companies offer what they call an “enhanced” policy. The enhanced policy offers the same coverage against title defects that occurred prior to your ownership of the property, along with some coverage for defects that occur after you’ve purchased the property. The enhanced policy also has both policy limitations and deductibles. The added expense for the policy probably isn’t necessary. For instance, an enhanced title policy may give you some money if you find out after closing that a certain structure is actually not on your property, such as a fence or storage shed. If your neighbor makes you tear it down, your “enhanced” policy may cover you…after you pay a huge deductible of course! I never recommend enhanced title insurance to anyone and I’ve never seen a lender get an enhanced policy.
20 Reasons You Need Title Insurance
Fraud in the documents
Undue influence on the grantor of a deed
False impersonation of the seller
Undisclosed or missing heirs
Wills improperly probated
Seller lies about wills and/or trusts
Mental incompetence of a seller
Transfer by a minor
Heirs born after a will is executed
Incorrect legal descriptions of the property
Nondelivery of deeds
Claims against title not recorded properly
Deeds executed under fraudulent or expired powers of attorney
Confusion about similar names
Dower or curtesy rights of former owners
Incorrect filing of land records
Clerical errors and typos
Delivery of deed after the death of the seller
I hope this article was helpful and informative. If you have more questions, feel free to contact me. If I can’t answer your question I will be happy to refer you to some excellent title agents and attorneys!