What is title insurance?
Title insurance is actually a process, with the insurance policy being the end product.
This process starts with a comprehensive search of public records to determine if any liens or other encumbrances are attached to the title. During the search, detailed information from potentially hundreds of sources is gathered and reviewed, including tax records, federal, state and local records, court judgments, deeds and an evaluation of whether the property characteristics are accurately reflected by the information on the title. Not surprisingly, one in four title searches uncovers some problem that must be rectified prior to the close.
What kind of problems can occur?
There are four primary categories that can cloud title and result in significant risk for a prospective home buyer. The title search meticulously seeks out and evaluates known indication of these issues; however, even the most comprehensive search may not uncover every hidden area of title risk.
Liens can be placed against a title by any party with an unpaid financial obligation against the property owner. The nature of claims can be everything from unpaid child support or alimony to unpaid traffic tickets, taxes or bills from contractors like electricians or plumbers.
Errors may have occurred during the course of previous ownership changes that could have included recording errors, typographical errors, incorrect legal descriptions, incorrect indexing of land records or title search errors resulting from undisclosed issues like unsatisfied claims not shown in the public record.
Claims against a property may come from missing heirs or heirs born after the execution of a will, the dower or courtesy rights of spouses or even from government or corporate entitles. They can also arise when the mental competence of a Grantor is called into question; when wills are not properly probated or are misinterpreted; when a title was transferred by a minor; or when a Grantor did so while under undue influence.