Why You Should Purchase Title Insurance Coverage When Buying Property

According to the title search report, the chain of title indicates that a property had been conveyed to seller, Bob Zavonek by Bill Cleckley. Relying on the information from the report, Tom Karter purchases a dwelling and property from Bob Zavonek. After Mr. Karter acquires the property, Bill Cleckley demands that Karter get off his property. Karter later learns that Mr. Cleckley had never signed a deed conveying the property to Mr. Zavonek. Mr. Zavonek had forged Cleckley's signature on documents and fraudulently conveyed the property to himself. The title search company is not in error by reporting Zavonek as the property owner of record. They had no way of knowing of his fraud.

The fraud is a defect in the title. The buyer, Mr. Karter has suffered a loss because the property he purchased in good faith was not legally owned by the seller, Mr. Zavonek. Does Mr. Karter have any remedy available to him? If he purchased title insurance he does. Title insurance insures a property owner against loss arising from title defects. Title is evidence of ownership of real estate. Proof of good title is contained in the title search report which is presented to the buyer at or before closing of the real estate transaction. No matter how careful the title company personnel preparing a title report may be, there is no guarantee that the title report is one hundred per cent accurate.

There are a number of title defect that can result in injury to an unsuspecting property buyer, some of them include; negligence by the abstractor, a mistake in the boundary description, the failure too mention and easement or encumbrance affecting the property, and execution of a conveyance instrument by a minor or other incompetent person. If the information provided by the title searcher is false or inaccurate a title defect can occur.

Title insurance provides protection to the buyer and the lender, thus encouraging financial institutions to willing make loans to real property purchasers. The amount of the insurance coverage is generally equal to the amount of the property's purchase price and is a one time charge, consisting of a single premium payment. The insurance remains in effect as long as the purchaser and their heirs have an interest in the property. When the property is sold, a new policy must be purchased by the new buyer.

Before a title insurance company will issue a policy for a particular property it examines all of the public records related to that property. This examination or search is completed by an abstractor or title searcher. The information gathered becomes the title search report. The issuance of the insurance policy is contingent on this gathered information. If a defect is mentioned in the report, the title insurance company may still offer to agree insurance the title "around the defect." That means the defect is specifically excluded. The title search activity is usually a separate charge and not included as part of the title insurance policy premium.

Title defects are generally the exception, not the rule, however, like all insurances, the importance of having the coverage is not evidenced until trouble occurs. It is generally wiser to obtain title insurance when you purchase real property rather than risk purchasing property without it, In the event a defect is discovered, the cost, time, and efforts to deal with the incident is likely to be much more expensive than the insurance premium cost.

The Importance of Title Insurance - Kauai Realtor Magazine