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If the lender has title
insurance protection and the owner does not, what possible danger of loss
exists?
As an example, assume real
estate was purchased for $100,000. A down payment of $20,000 is made, and
a lender holds an $80,000 mortgage lien, or beneficial interest. The lender
acquires title insurance protecting the lender's interest up to $80,000.
But the purchaser's down payment of $20,000 is not covered.
What if some matter arises
affecting the past ownership of the property? The title insurance company
would defend and protect the interest of the lender. The purchaser, however,
would have to assume the financial burden of his or her own legal defense.
If the defense is not successful, the result could be a total loss of title.
The title insurance company
pays the lender's loss and is entitled to take an assignment of the borrower's
debt. The purchaser loses the down payment, other equity in the property
that may have accumulated, and the property. And the balance on the note
is still due!
HOW CAN THERE BE A TITLE
DEFECT IF THE TITLE HAS BEEN SEARCHED AND A LOAN POLICY ISSUED?
Title insurance is issued
after a careful examination of copies of the public records. But even the
most thorough search cannot absolutely assure that no title hazards are
present, despite the knowledge and experience of professional title examiners.
In addition to matters shown by public records, other title problems may
exist that cannot be disclosed in a search.
WHAT TITLE INSURANCE PROTECTS
AGAINST
Here are just a few of the
most common hidden risks that can cause loss of title or create an encumbrance
on title:
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False impersonation of the true
owner of the property
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Forged deeds, releases or wills
-
Undisclosed or missing heirs
-
Instruments executed under invalid
or expired power of attorney
-
Mistakes in recording legal
documents
-
Misinterpretations of wills
-
Deeds by persons of unsound
mind
-
Deeds by minors
-
Deeds by persons supposedly
single, but in fact married
-
Liens for unpaid estate, inheritance,
income or gift taxes
-
Fraud
WHAT PROTECTION DOES TITLE
INSURANCE PROVIDE AGAINST DEFECTS AND HIDDEN RISKS?
Title insurance will pay
for defending against any lawsuit attacking the title as insured, and will
either clear up title problems or pay the insured's losses. For a one-time
premium, an owner's title insurance policy remains in effect as long as
the insured, or the insured's heirs, retain an interest in the property,
or have any obligations under a warranty in any conveyance of it. Owner's
title insurance, issued simultaneously with a loan policy, is the best
title insurance value a property owner can get.
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