I. THE WHO
A. Who needs title insurance?
Anyone purchasing real estate should consider buying owner’s title insurance to insure their title. Also, any lender desiring to insure its loan should consider buying title insurance.
B. Who requires title insurance?
On most loans made by banks and mortgage companies for the purchase of real estate, a mortgagee’s (a.k.a. lender’s) title insurance policy is required. This is normally paid by the buyer as a condition of the loan, yet this mortgagee’s policy affords the buyer of the real estate no protection. In other words, the mortgagee’s policy only protects the loan on the property in the event of a title defect. (More on this in Section II. The What)
C. Who sells title insurance?
Title insurance companies such as Mississippi Valley Title Insurance Company, First American Title Insurance Company, and Lawyer’s Title sell title insurance through their agents, most of whom are closing attorneys. Therefore, at closing, it is common practice that buyers are given the opportunity to buy an owner’s title insurance policy. In fact, one of the many documents that a buyer may be asked to sign at closing is a document providing the buyer notice that they have the right to purchase owner’s title insurance.
II. THE WHAT
A. What is title insurance?
Simply put, title insurance is a contract of indemnity. It indemnifies (or makes whole) the policy holder who suffers any loss as a result of unknown defects in their title that exist as of the date of the policy. It is not a guarantee that title to their property is perfect. However, it is a contract of insurance that can protect the policy holder from financial loss as a result of title defects.
B. What is the difference in an owners’ policy and a mortgagee’s policy?
An owner’s policy indemnifies the property owner against title defects. A mortgagee’s (or lender’s) policy ensures the lender that this deed of trust has priority over all other liens or claims.
C. What are some examples of defects that are insured in a title insurance policy?
1. Forgeries in the chain of title (for example, a deed, deed of trust, or release of deed of trust is forged).
2. The marital status of a grantor in a deed in the chain of title is misrepresented (for example, the deed states that the grantor is an unmarried person, but the grantor is actually married which requires the grantor’s spouse to sign the deed for the deed to validly convey complete title).
3. The grantor in a deed or deed of trust in the chain of title is a minor, is insane, or is subject to a legal disability.
4. A false heirship affidavit is given, leaving open the issue of undisclosed heirs who may have an ownership interest in the real estate.
5. A false affidavit is given as to the payment of bills for labor and materials related to the real estate, therefore allowing unpaid contractors and materialmen to file a lien on the property.
6. Deeds from estates may be set aside if proper contest to the will is filed within the two year period of time if the will is probated in common form.
7. Unfiled or mis-indexed documents granting rights in the real estate (for example, mis-indexed easements, deeds or deeds of trust that do not show up in the chain of title).
D. What is the benefit of title insurance?
Generally, title insurance makes titles to real estate more merchantable by insuring any loss as a result of a title defect. Title insurance pays the fair market value of any loss that the policyholder suffers as a result of a title defect. Title insurance also provides a legal defense to the policyholder’s title (i.e. pays attorney fees) in the event that a claim is made against the policyholder for a title defect, even after the policyholder no longer owns the real estate.
III. THE WHEN
A. When should it be purchased?
It is recommended that title insurance be purchased at closing. For the new property owner who purchases title insurance at closing, this means that their title will be insured the moment they acquire title to the property.
B. When can it be purchased?
If title insurance is not purchased at closing, then it can be purchased later. Generally, a title insurance policy can be issued within a short period of time after closing (normally not more than fourteen  days) for no additional cost above the applicable premium. However, if title insurance is purchased after this period, then the property owner (or lender, as the case may be) will incur additional costs for an updated title search to ensure that no new liens or other matters of record have been filed in the public records (such as judgments, easements, fraudulent subsequent conveyances, etc.).
C. When can a title insurance policy be helpful?
1. To the Property Owner. Title insurance is helpful to the property owner when it is discovered that there is a defect in the chain of title, such as a forgotten or unknown heir who has never conveyed their interest in the property; a misrepresentation in a deed as to the marital status of the grantor where the grantor’s spouse never conveyed their marital or homestead rights in the property; a document is forged; or a notary acknowledgment is faulty, making the deed void or voidable. (For a more complete listing, see Section II. The What (C) .) In the event that there is a defect which is later discovered, an owner’s title insurance policy would provide the owner with attorneys who would defend the owner’s title at no cost to the owner (i.e. free to the owner from attorney fees), and in the event that the owner loses title to all or a portion of the title, then the owner would be paid the fair market value of that title which the owner lost as a result of the title defect up to the face amount of the policy adjusted for inflation.
2. To the Lender. In the same way that an owner may benefit from a title insurance policy, so too may a lender if the lender has purchased a mortgagee’s policy. The lender is primarily concerned that their lien is properly recorded and that they are adequately collateralized. When the owner’s title is attacked, then the lender’s collateral is attacked. Therefore, a lender’s security interest would be defended, and the lender would be provided legal counsel at no cost to the lender in defending the collateral. Further, any loss in the title which diminishes the lender’s collateral or which causes the lender a loss would be paid to the lender by the title insurance company.
3. To the Realtor. In any transaction where a title defect is discovered or where fraud is involved, a title insurance policy
actually serves as a pot of money which is available to indemnify the property owner or lender from a loss. Many times when fraud is involved in a land transaction, the realtors are named as parties to the lawsuits being filed, with allegations that the realtors were somehow a party to the fraud. Therefore, it is not wise for a realtor to advise their clients not to purchase title insurance, as it protects their clients’ title and incidentally provides some benefit to the realtors who were parties to the alleged fraudulent transaction.
D. When can a title insurance policy not be helpful?
A title insurance policy will not be helpful in only one instance: When the property owner does not purchase an owner’s title insurance policy, or when a lender does not purchase a mortgagee’s policy (as the case may be).
IV. THE WHERE
A. Where can you purchase title insurance?
Title insurance can usually be purchased through the title company or the closing attorney who closed your transaction. You will likely be provided an opportunity at closing to purchase title insurance. If not, please contact the title company or the closing attorney, and they will be happy to assist you.
B. Where will the policy be kept?
The original title insurance policy will be provided to the insured at the issuance of the policy. A copy of the policy will be kept at the title insurance agent’s office (i.e. the title company or closing attorney) and a duplicate copy of the policy will be kept by the Title Insurance Company providing the coverage (e.g. Mississippi Valley Title Insurance Company, First American Title Insurance Company, Lawyer’s Title Insurance Group, etc.).
C. Where can you get a copy of the title insurance policy if you lose your copy of the policy?
The Title Insurance Company insuring your title can provide you with a replacement policy upon request.
D. Where can you check if you are uncertain whether you purchased an owner’s title insurance policy?
You can call the closing attorney or title company who closed the transaction if you are uncertain whether you purchased an owner’s title insurance policy. If you learn that you did not purchase owner’s title insurance, but would like to do so, the closing attorney or title company can assist you in obtaining an owner’s title insurance policy.
V. THE WHY
A. Why is title insurance important?
It is likely that by the time you purchase your property, the property has been conveyed at least ten (10) times since the patent was issued. And in these ten (10) transactions, it is likely that an owner in the chain of title has died, and although necessary, no estate proceeding was conducted to establish heirs; and/or that previous property owners divorced, leaving a number of title issues to be addressed; and/or that the property was once a part of a much larger tract of land; and/or that encroachments of fences or even houses may exist over the boundary lines, setbacks, or easements; and/or that the property is subject to easements or reserved mineral rights; and/or that there are errors in the legal description; and/or that there are unrecorded leases or mis-recorded deeds or other instruments that affect title. It is further likely that a number of lawyers and abstractors have examined the title to the property, which may have missed important recorded documents in the chain of title. There are also a number of defects or deficiencies which can occur in instruments which create a title defect in the chain of title (such as a defective notary acknowledgment; an undated instrument; one of the grantors failing to sign the deed; the signature of the purported grantor in the deed is different than how title was granted [title granted to William C. Doe, Jr. but deed signed W. C. Doe]; etc.). Title insurance will usually provide coverage for all of these items.
B. Why should you buy title insurance?
Simply, to protect your investment. You wouldn’t purchase a home without insuring the structure and contents under a homeowner’s policy. So why wouldn’t you purchase a policy of insurance which insures and defends title to your property? Title insurance is inexpensive. You pay a one-time premium, and your title is insured for as long as you own the property.
VI. THE HOW
A. How much does an owner’s title insurance policy cost?
Simply put, this depends on a number of things. Is an owner’s policy and a lender’s policy being issued at the same time? Has the property been insured before?
1. The Simultaneous Issue Rate. If an owner’s policy and a lender’s policy is being issued at the same time, then a simultaneous issue rate will reduce the costs of title insurance because the title insurer is issuing two (2) policies at the same time for the same piece of property. Additionally, since they are being issued at the same time, only one title insurance commitment fee (if required) will be charged. Example: A purchaser contracts to purchase a $250,000.00 home. The purchaser is borrowing $200,000.00 from a bank to purchase the home. The bank is requiring the purchaser to purchase a mortgagee’s title insurance policy. The premium for the mortgagee’s policy insuring the $200,000.00 deed of trust is $600.00. The premium for an owner’s title insurance policy in the amount of $250,000.00 is $950.00. However, if both the owner’s policy and the mortgagee’s policy are issued simultaneously, then the simultaneous issue rate premium for both the owner’s policy and the mortgagee’s policy is $1,000.00. Therefore, since the owner had to purchase a mortgagee’s policy for the lender, the cost to the buyer for an owner’s policy is only $400.00 (a savings to the buyer of $550.00).
2. The Re-issue Rate. If the property has been insured before, then you may be entitled to a re-issue rate, which is a reduced premium because the Title Insurance Company currently insures the title. This might occur when there is a prior owner’s policy or a prior construction loan policy. Generally, title insurance is calculated at $3.00 per thousand dollars on a mortgagee’s title insurance policy, and $4.00 per thousand dollars of an owner’s title insurance policy. However, the larger the amount of the policy to be issued, the lower the cost per thousand.
B. How is the premium paid - annually, quarterly, or monthly?
Title insurance premiums are not paid like life insurance, homeowner’s or automobile insurance, health insurance, or disability insurance premiums. Policies insuring a person’s life, health, home or car, and earnings (disability) require monthly, quarterly, or annual premiums be paid to remain insured. However, a title insurance premium is paid only one time, and no more. The title insurance premium is paid at the time the policy is purchased, and the property owner is insured for as long as the property owner owns the property. Similarly, the lender is insured so long as the loan remains. No additional premiums are ever paid.