Most property that people purchase can be physically transported from the seller to the buyer. This would include everything from jewelry, a car, a washing machine, etc. However, the purchase of land in any form, whether a home, a lot or acreage, is accomplished strictly by the use of documents.
Typically the seller executes a Warranty Deed in favor of the buyer. The deed is recorded with the local county, and constitutes proof that the buyer now owns the land. What, then, is the purpose of title insurance?
Owner’s title insurance is critically important in the event that future events reveal that the seller did not have clear title to the property. As the saying goes, “one cannot give what one does not have.”
For example, assume that the seller of a parcel of land inherited that land when his widowed father died without a Will. Assuming that the son was an only child, he would inherit this land. However, assume further that five years after purchasing the land from the son, a nephew of the father comes forward with a validly signed Will which clearly gives the father’s land to the nephew?
In such a situation the owner’s title insurance will hire an attorney, like a real estate or real estate litigation lawyer Coeur d’Alene ID residents turn to, to go to court to defend the owner against the nephew’s claim. However, should the nephew’s claim be validly based on a properly executed Will, then the owner’s title insurance policy will pay the owner for the financial loss of that land. In other words, the owner will be “made whole.”
In many real estate transactions, it is common to require the seller of the home to pay the cost of the owner’s title insurance policy. Unlike most insurance policies which require regular monthly payments, owner’s title insurance is paid in one lump sum at the time of the closing of the sale of home.
The owner’s title insurance policy may protect the owner from other types of losses regarding the home, such as:
— Previously undisclosed easements
— Unknown liens by tradesmen and contractors
— Violations of zoning laws
— Unlawful encroachments on to other property
–Encroachment of fences
NOTE – All title insurance policies are not the same. The degree of protection the buyer receives depends upon the exact language of the policy of insurance.
Finally, if a person purchases a home using a mortgage, the mortgaging bank will almost always require the buyer to purchase Lender’s Title Insurance, protecting the bank from the types of losses described above.
Thanks to our friends and contributors from The Bendell Law Firm PLLC for their insight into title insurance.