Title InsuranceTitle

Since the early 1980's, almost all lenders nationwide have required title insurance as a prerequisite to accepting mortgages on residential and commercial real estate. Although title insurance companies have been writing such insurance since the late 1800's, its popularity has grown with the onset of secondary market mortgages. These are mortgages which are originated locally, and sold nationally to investors in the same way that bonds, and other securities are sold. Real estate title insurance, very simply, is an insured statement of the conditions of one's title or ownership rights to a certain piece of real estate. The policy guarantees that the property being purchased or mortgaged is free from undisclosed liens or rights, and it guarantees additionally, that any confusion as to rights of ownership, will be resolved in favor of the party owning the real estate, or the company will pay up to the policy limits to the policy holder.

A party purchasing real estate is always offered the opportunity to purchase an Owner's Policy of Title Insurance by the party conducting the real estate closing. For example, you have decided to purchase a house in Old Lyme, and are obtaining a mortgage to help you finance the purchase from a bank or mortgage company. The lending institution will require an attorney or title agent to research the title to the property, and issue them a Lender’s Policy of Title Insurance. This assures to the lender that the property is or will be owned by the purchaser, and that no defects, liens or encumbrances exist on the property that would adversely affect the marketability of the title. Furthermore, the lender’s policy guarantees that the mortgage will be recorded properly, and secures the property for the repayment of the loan. Since the closing attorney is already issuing a lender’s policy of title insurance, the buyer has the opportunity at that time to obtain an owner’s policy of title insurance, at a cost substantially less than the buyer would pay, if the policy was not written simultaneously with the lender’s policy.

The owner’s policy of title insurance insures that the owner has good and marketable title to the property, free from any encumbrances or liens that would adversely affect the property, with the exception of defects or liens made known to the buyer, and insures to the owner that if any such liens, encumbrances, defects or other title problems become known, the title insurer will defend the buyer’s title to the property.

In many instances, we are asked whether or not title insurance is necessary or advisable for the owner to purchase. We recommend the purchase of the title insurance, for a few simple reasons. First, the premium for purchase of the title insurance policy is a one-time charge. Since the purchaser is usually borrowing money to finance the purchase of the property, the majority of the cost of the title insurance policy has been paid for by the premiums of the lender's policy that is required by the lender. Usually for an additional few hundred dollars or less, the owner can insure against a variety of problems that could arise in the future, as relates to the property. These items include forged documents in the chain of title, signatures of mentally incompetent persons or minors which are unknown to the party reviewing the title, mistakes or inaccuracies in recording of legal documents of title at the Land Records or in the Probate Court, fraud in the execution or in the handling of a transaction in the Probate Court, undisclosed or missing heirs, fraud in the execution or in the handling of a transaction in the prior chain of title, invalid divorces or misrepresentation of marital status of the parties signing the documents, unpaid taxes which were not paid prior to the purchase of the property, and most importantly, clerical errors in the public records and claims of parties unknown because their claims have not been filed in any indices of public record in the State of Connecticut. The lender’s policy of title insurance does not protect the buyer, and can only be claimed against if the lender suffers a financial loss because of a title defect that adversely affects a foreclosure of the buyer’s mortgage. These are just a few of the issues which can arise in the title to anyone's real estate in Connecticut, and in other parts of the country.

Our office has seen many defects in titles which could not be revealed by examination of the Land Records and Probate Courts. These defects arise at a time after the transaction has taken place, and often purchasers suffer significant losses, as a result of them. That is why owner’s title insurance makes a great deal of sense. Title insurance, like any other insurance, protects against the eventuality of an unforeseen and an unfortunate circumstance. For more information on Title Insurance, go to our section on Links, and go to First American Title Insurance Company website.  You may also visit the Real Estate Tools section to calculate the cost of title insurance for your transaction.  Please feel free to contact our office with any additional questions you may have regarding title insurance.

 

 

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