If you ask homeowners to name the most important type of real estate insurance, a lot of them will answer with confidence and no doubt that it is homeowner"s insurance. That answer shouldn"t be a surprise because after all, homeowners insurance policies protect against potentially huge financial losses due to fire, water, wind, vandalism and many more dangers. What type of property insurance could be more important? Well, to begin with, you have to make sure that the property covered by that homeowner"s insurance policy belongs to the alleged homeowner.
For that, there is title insurance, a special form of insurance policy. When a particular residential or commercial real estate unit changes owner, a title policy ensures that the property is not burdened with past liens or other problems. For example, a forged title, unsettled lien, or defects in the title of the property. Such issues could affect the legality of the transfer, or result in future financial costs.
In most cases, lenders and buyers purchase separate title insurance policies, each to protect their respective interests in the property. The buyer typically handles the full cost of both policies, although it is often possible to develop a cost-sharing arrangement with the seller. You can even convince the seller to assume the entire financial burden in a buyer"s market. Title underwriting is usually included as a closing cost in a real estate transaction.
Regardless of whether you are buying an older home or a recent home, you will probably need a title policy. This article will give you more information about this unusual but incredibly common form of insurance.
What is Title Insurance?
Although title insurance exists in the most industrialized countries, it is much more common in the United States than in other countries. This is mainly because local governments here play a smaller role in determining the legality of transfers of ownership and ownership than almost anywhere else in the world.
In most countries, particularly those influenced by the English law. In such legal system, new property owners record the title as newly transferred to their land with the applicable local government. The local government then acts as the final arbiter of any dispute that arises as a result of the transaction. In contrast, in most US jurisdictions, they simply record each transfer of ownership without conclusively determining whether the title is valid or whether the property is free of liens or other charges. That determination rests with private specialists, including employees of the title insurance company. That is why a buyer should contact the best title insurance companies in the area.
History of Title Insurance
Believe it or not, before the mid-nineteenth century, property owners did not have legal recourse against invalid or fraudulent property titles. At that time, making sure that your title was valid relied solely on the buyer. This was an arduous process, which took a long time and was practically impossible in states with large borders, bad roads and centrally located and sometimes with property records kept in abysmal form.
This unfortunate situation was challenged and confirmed in the emblematic case Watson Vs. Muirhead, served by the Supreme Court of Pennsylvania in 1868. The court ruled that Muirhead, a Pennsylvania real estate broker, could not be held liable for relying on the wrong opinion of a lawyer, who indicated that a title was free of encumbrances. In fact, the title had a pre-existing lien that the examining attorney did not discover, resulting in a serious financial problem for the buyer.
Disgusted by the decision, the owners pressured the Pennsylvania Legislature to intervene. In 1874, the agency approved a law that allowed the insurance of securities. In 1876, the first title insurance company was established in Philadelphia. After that, other states followed the lead and as we say the rest is history.