For more than a century, the title industry has
worked to protect the American dream of
homeownership by insuring title for America’s
homebuyers and lenders. Title insurance insures
consumers against the risk that the home they are
buying is not really theirs. It also serves to protect
our country’s real estate system – an important
part of our nation’s economy, and a model for real
estate industries around the globe.
The title industry takes numerous steps before
insuring title, such as the title search and
examination performed upon a request for
insurance, the curative actions taken for problems
found during the search, the settlement and
closing services conducted, and the policies issued
to owners and lenders – for which only a one-time
policy premium is charged
Why Title Insurance?
Four essential services are performed during the title process.
- Title Search and Examination
When buying a home, prospective homebuyers or their real estate professionals consult
a title company or agent. These highly trained title professionals conduct a search and examination of the public records to find and isolate title risks. As the records are
generally indexed by name and not by property location, finding pertinent information can be tedious. The title industry invests millions of dollars to duplicate records and index them into geographic title databases to make the process more efficient.
- Records that may be searched: tax, court judgment, deed, encumbrance, mortgage, federal and state records.
- Real property characteristics that may be evaluated: zoning, location, survey issues, improvement type, etc.
- Potential risks that may be identified: prior defective deeds, unreleased mortgages, mechanics’ liens, tax judgments, outstanding child support liens, access rights, utility and right-of-way easements, water and sewer assessments, improperly indexed documents, pending bankruptcy or divorce proceedings, boundary disputes, probate issues, forgery, fraud, undisclosed or missing heirs, etc.
- Creative Actions
During the title search and examination, title defects are found in more than one out of three residential real estate transactions.
These defects are remedied or otherwise addressed by title professionals as a matter of course – a process that can be difficult, as well as costly. Homebuyers are often unaware that this important work is being done behind the scenes to protect their interests.
The corrective work performed by title professionals also helps to uphold the integrity of the land records upon which our property registration system is built.
- Settlement and/or Closing Services
In many parts of the country, the title professional also conducts the settlement and/or closing. For most transactions, the process requires more than 100 time-consuming steps, including the following:
- Settlement: review contract or escrow agreement, handle monies, pay off any prior mortgages, coordinate property inspections, prepare HUD-1 statement, and dozens of additional tasks.
- Closing: gather parties to review and finalize documents, close the transaction, and submit pertinent documents for proper recordation.
- The Title Insurance Policy
When a property’s title is determined to be in insurable condition, the transaction can close and a policy of title insurance can be issued. Among other things, the policy insures against certain title risks that are undiscoverable from public records, such as
forgery, fraud, and lack of capacity in prior transactions.
Two Categories of Residential Title Insurance are Available:
An Owner’s Policy protects the homeowner from enumerated title risks for as long as the policyholder owns the property. We also offer various extended policies and expanded coverages to address title issues that may arise after the policy date, including false claims by identity thieves, neighbors building encroachments, and more.
A Loan Policy is generally required by lenders (and purchasers of loans in the secondary mortgage market) to provide insurance that their mortgage liens are valid and enforceable, and that they have priority over other liens or claims. Extended policies and expanded coverage’s are also available to lenders.
How Title Insurance Differs From Other Forms of Insurance
Unlike other forms of insurance, title insurance emphasizes loss prevention for the insured. Title professionals perform the labor-intensive work to find and address title issues that could threaten homeowners and lenders. This upfront analysis results in
fewer claims and gives policyholders the peace of mind that their title risk has been effectively reduced. In contrast, insurance based on loss assumption (such as auto or property and casualty insurance) requires little upfront work because claims cannot be predicted or prevented, and premium funds are needed only in the event of an accident or other covered issue. These types of insurance also require annual coverage payments, unlike title insurance which is paid for only upon the purchase of the house or establishment of a new mortgage. technology’s role in the cost of title insurance
Advances in technology are helping to streamline the title search process. Title insurers continue to make investments in “title databases,” where documents from the public records are organized and centralized. Yet, even with these advances, technology
cannot fully automate the title process given the need to analyze and interpret the information, to correct title defects, and the fact that many county recorder offices still maintain only paper records. These and other functions require the skill of highly trained
professionals. The development of automated title processes will continue as title insurers focus on improving the quality of service while reducing costs.
Why New Homes Need Title Protection
Title insurance is necessary on a newly constructed home even though the home itself has no title history. This is because title risks may result from actions that occurred before the new home was built. Also, the builder or developer may have created title risks, such as liens from unpaid subcontractors, tax assessments, bankruptcy proceedings, or a delinquent loan balance on the property. Title professionals help uncover and address these issues upfront, and an Owner’s Policy protects the homebuyer after they move into their new home.