You have found a house you like; your offer has been accepted and escrow has been opened at a title company. Soon after escrow is opened, your escrow officer sends you a document entitled Commitment for Title Insurance. At this point you need to understand what title insurance is and why it is so important.
There are two types of title insurance: owner's coverage and lender's protection.
Owner’s title insurance ordinarily is issued in the amount of the real estate purchase and lasts as long as you have ownership in the property.
Most lenders require mortgage title insurance as security for their investment in real estate, just as they will require fire insurance and other types of coverage as investor protection. Lenders protection is insurance that decreases and eventually disappears as the loan is paid off.
An important part of title insurance is its emphasis on risk elimination before issuing the policy. This means the insured has the best possible chance for avoiding title claim and loss.
Title insuring begins with a search of public records for matters affecting the title to the real estate. The examination of evidence from a search is intended to fully report all material objections to the title. Sometimes, instruments that don’t clearly pass title are found in the history of ownership conducted in a search. These instruments need to be corrected before a clear title can be conveyed.
Some examples of documents that can become issues are deeds, wills and trusts from prior owners that were not recorded properly when the property changed hands. Outstanding mortgages, judgments or tax liens that have not been satisfied will be issues that must be addressed. Unrecorded easements and mistakes in public records can also cause title problems.
The search and the examination by a title company will disclose problems like these so they can be cleared up prior to close of escrow. But even the most careful preventive work cannot locate all the hidden hazards of title. Because there may be unknown problems, it is imperative that you have owner’s title protection when you buy a home. Make sure you are fully protected, insist on a title insurance policy even if you are paying cash.
Review the Commitment for Title Insurance closely. The schedule “B” section will tell all parties what, if any issues, need to be cleared prior to close of escrow. If you see anything in the document that raises a red flag, discuss it with your escrow officer and make sure that you are satisfied with his or her answer before you close on your home. Finally, I always suggest to buyers that they use a local title company. When you use someone local you can sit down with your escrow officer to get your concerns addressed and your questions answered.