What Is Title Search and Title Insurance?

For many people, buying a home or any other type of real property can be the biggest purchase of their lives. During the process of buying real property, both buyer and seller must be sure that the title (or transfer of real estate ownership) is free of liens, claims, and encumbrances. States require that, for valid property ownership transfers, a title search be conducted by a title company and/or a qualified attorney (depending on the state). The chief purpose of title insurance is to protect both buyer and seller against unforeseen defects in a property’s transfer of ownership.

What Are Possible Title Defects?

Defects may include:

undisclosed or missing heirs
unpaid tax liens
contractor liens
deed forgery
an interruption in the title records
a faulty or incomplete certificate of occupancy
uncorrected building code violations
an incorrect property survey
conflicts in boundary lines
lack of access to an open street
undisclosed easements or rights-of-way

What Should Clients Expect of a Title Search Professional?

Buyers should expect the title search insurer to verify the seller’s right to transfer ownership.

Buyers and sellers should expect a transaction closing that is on schedule.

Clients should not expect any major liens, claims, or encumbrances against the property that were unknown at the time when the title insurance was issued.

In the case of later-discovered liens, claims, or encumbrances, a title insurer should be expected to reimburse his or her client for losses up to the face value limit of the title insurance policy, except in the case of defect risks that are specifically excluded from policy coverage.

If there is an ownership dispute or claim against the client’s property after a title search, the title insurer will cover fees for the client’s legal defense and/or compensate the client for his or her losses.

The "chain of title" should be searched back at least 50 years.

What Should a Client Know Before Buying Title Insurance?

You should do the following before buying title insurance:

Compare the rates of different title search insurance policies. Different companies offer varied additional (and occasionally unnecessary) services at varied costs.
Visit your state’s Department of Insurance Web site for additional information about title search insurance.
Find out which title insurance companies offer discounts for both lender and buyer.
Note that a seller cannot legally require a buyer to buy title insurance from a specific company.
Find out if there are types of title insurance discounts offered by the insurer. For example, discounts may be offered to first-time homebuyers or to a specific class of professionals, such as doctors, engineers, or teachers. There may also be subdivision bulk rate discounts sold under the auspices of a subdivision builder or developer.

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Are There Different Types of Title Insurance Policies?

There are standardized title insurance policies specific to states, such as CLTA (at http://www.clta.org/) issued by the state of California. There are also nationwide ALTA (American Land Title Association) policies (at http://www.alta.org/) that include most (if not all) state-specific coverage features, plus added protections against defects not discoverable through a search of public records. Certain additional endorsements and special coverage features may be added to the above policies at extra charges. Such additions or contract riders may include undiscovered covenant enforcements like homeowner association restrictions, water damage, or the accuracy of property boundaries.

Who Pays for the Title Search and Title Insurance?

In most states, the title search and insurance payment is negotiable between buyer and seller. In some cases, this is decided by regional custom. For example, in Southern California, it is customary for sellers to pay, while buyers generally pay in Northern California.

What is a Title Insurance Company's Function During and After Closing?

The title search insurer uses closing money paid by the buyer, seller, or both for these expenses:

outstanding liens against the property
the homeowners insurance underwriter's premium for insuring the property
any money due to the seller

The title company records the property deed and anything else that needs to be recorded at the county level on the lender's behalf.

Do You Need Title Insurance When Refinancing?

A lender may require a title search to protect any subsequent investment in the property, which includes a refinance loan.

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