Title insurance is an important investment

March 15, 2013

Title insurance is an important investment

Article provided by Lonergan Law Firm, PLLC
Visit us at http://www.lonerganlaw.com

Texas residents who purchase a piece of property are usually given title to the property. However, many property owners have questions about what exactly "title" is or why title insurance is necessary.

Definition of a title and its purposes

When a piece of property is purchased, the new owner is given "title" to the property. Having title gives an individual the right to possess and use a particular property. Property can be titled in different ways, depending on the rights each individual has to the property. For example, two people may hold a title as joint tenants or they could be tenants in common. The title to a property could also grant a right of survivorship or life estate to another person.

Since property is used for many purposes, each property's title reflects the different rights others have in the property. For instance, an individual other than the owner of a property could own rights to minerals, airspace or utilities located on the property.

Banks, city agencies or individuals with liens against the property may also possess property rights. A government might place liens against property if taxes are not paid. Cities commonly secure easements over property for activities such as placing utility lines across portions of the property.

The importance of title insurance

Title insurance is designed to protect property owners from unexpected problems with the title to their property. Unlike other forms of insurance, title insurance covers past events. It does not cover anything that happens after issuance of the title. Title insurance is essential because even if a title search is done, a problem could have been missed that will affect the property owner's rights to his or her property. Title issues are often costly and result in loss of enjoyment of a home or property.

There are many types of problems that can arise with respect to title. Fraud is one potential title issue. Title insurance protects against forged documents or dishonest claims by people who falsely claim to own the property. Unintentional errors are another title issue. The grantor of title may have forgotten that the property was already sold to someone else.

Other potential issues include:
-Appearance of formerly unknown heirs

-Failure to notarize documents

-Errors in public records

-Errors in descriptions

-Invalid wills

Because these events usually occur before purchase of the property, title insurance provides valuable protection. Title insurance may also cover the cost of defending any ownership disputes.

How title coverage works

The two types of title insurance are lender's policies and owner's policies. The purpose of a lender's policy is to protect the lender's interest in the property, not the property owner's. Most lenders will require a property owner to obtain a lender's policy as a condition of the mortgage loan. A lender's policy only covers the loan amount and is used to protect the lender if something is wrong with the property's title.

The amount of a lender's policy decreases each time a mortgage payment is made. When the loan is paid off, the lender's policy is no longer valid. At this point, an owner's policy is recommended.

Unfortunately, lender's policies do not protect the property owner's equity. As a result, it may be a good idea for a property owner to also obtain an owner's policy, which covers the entire value of the home at the time of purchase. The policy lasts as long as the individual possesses ownership of the property. An owner's policy is the best option for covering any problems that occur after title issuance that cost the property owner his or her equity.

An individual with questions about a title or title insurance can benefit from speaking to an experienced title insurance attorney. The attorney can help a property owner meet all of his or her legal obligations and deal with any potential issues that arise.