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Title Insurance Protects Property Ownership

posted by Bristow Anderson @ 5:44 PM
Wednesday, March 9, 2011

Most real property buyers understand that a title search is necessary to be sure they can rely on the title received at their closing.  However, there are some title problems which cannot be discovered even by the most thorough title search; these are hidden hazards which are beyond the scope of a reasonable search of the records, and include forgeries, fraud, errors by the recording clerk’s office in filng deeds, inchoate contractor’s and supplier’s liens, defective foreclosures, faulty surveys, misinterpreted wills, conveyances by a minor or a mentally incompetent person, an undiscovered heir or ex-spouse who returns to claim an interest, or a deed delivered after the property owner’s death, to name just a few.

A title insurance policy protects the insured up to the policy amount, which amount can escalate in certain types of policies, from loss which results from such title defects.  A title policy does not guarantee that title problems will not occur, but it does protect one from loss resulting from covered title defects which threaten one’s ownership rights.  It will also pay all legal fees involved in the defense of one’s rights as insured.  Although title losses occur infrequently, when they do occur they can be very expensive if one is not insured.

Lenders recognize the value of title insurance protection and obtain a lender’s policy of title insurance when they make loans which are secured by real property.  A lender’s policy provides protection only to the lender for the loan amount, and provides no protection for the owner’s equity; in fact, in the event of a claim, the title insurer which is not also providing owner’s coverage to the owner for her equity can be subrogated to the rights of the lender upon paying that lender’s losses and can enforce payment of the loan obligation evidenced by the promissory note it acquires from that lender to recoup its losses.  On the other hand, an owner’s title policy not only protects the property owner’s equity, it also creates a duty to the insured owner which negates the possibility of lender subrogation.

The owner’s equity would be the difference between the owner’s policy amount, corresponding to the price or value of the property when the policy is issued (as escalated if applicable), and any liens or encumbrances on the property which are either specifically excepted in the policy, such as the owner’s purchase money mortgage(s), or which are created after the effective date of the policy, and so are not covered by it.  Title insurance protects against title defects in the past, before the new owner takes title, not defects in the future, when the title is under the owner’s control, and in this respect it is unlike most casualty insurance, which covers future perils.

The cost of an owner’s policy is minimal when obtained at the same time as the lender’s policy, because the title insurance company gives a “simultaneous issue rate,” reflecting the fact that providing two policies, although requiring more work and involving additional exposure, is less trouble because the same property is involved in each.  Owner’s title insurance is purchased through a one-time premium payment, and will even protect the named insured after he sells the property, based on liability by reason of warranties in any transfer or conveyance of the title to a third party.

Bristow Anderson

I am a native of Atlanta and received my law degree from the University of Georgia School of Law.

My law practice has been dedicated almost exclusively to real estate closings and related matters since 1984.

J. Bristow Anderson, P.C.
624 Holcomb Bridge Road, Suite 22
Roswell, Georgia 30076-1585
office: 770-998-6137

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