Main content
Finance and capital markets
Course: Finance and capital markets > Unit 2
Lesson 4: Home buying processTitle insurance
A title search checks if a property's title is clean, meaning no liens or claims. Title insurance protects buyers and lenders from unexpected claims or issues with the title. It's important for a smooth property transaction.
Want to join the conversation?
How much does title insurance costs (say, on a $500K house), and is it a 1 time payment or ongoing payments (say, yearly)?(22 votes)
but if this was real would he his morgega be 40 precent the tax money he pays to the city they live in(1 vote)
Do new houses need title insurance?(11 votes)
The title covers the land AND the house on it. The title insurance is MONEY. The title insurance will reimburse the bank or the mortgage company if it is stuck with a mortgage and the buyer "walks away" from the house and his/her financial obligation to pay the mortgage, so the bank will at least have money in addition to a shady claim and possible lawsuit over the title. Also, whether or not a bank or mortgage is involved, title insurance also provides funds to fight for your ownership rights if there is a lawsuit over the title.(3 votes)
- What's an example from some specific place, of exactly how long someone has to file one of those claims saying the title was invalid?(3 votes)
- That would vary greatly depending on circumstances. Ontario, Canada has 10 years for many circumstances. There are instances where 60 years is the limitation. Note, when the clock starts ticking is also important to take into consideration, it can be from the date of the transaction or the date a party becomes aware of the transaction. See: http://www.e-laws.gov.on.ca/html/statutes/english/elaws_statutes_90l15_e.htm(4 votes)
Let's say that I have this insurance, then someone comes and claims my house and then he wins the lawsuit; therefore, the insurance pays me the same amount I paid for the house. However, wouldn't I be losing anyway since my money is less worthy now due to inflation?(3 votes)- Actually, owner’s title insurance covers certain specified losses you suffer, so you need to look to the provisions of the specific policy for a specific answer, but typically a title policy will cover the costs of defense (but note that the law firm is chosen by the insurer) and the outstanding balance on the note, assuming there is one. If the property is paid off, the insurer will likely cover the current value of the property up to the limit of coverage you purchased.
The fact that a title examiner its willing to issue a policy does not mean you have clear title. It means that the examiner determined that the risk of a claim is sufficiently remote that the underwriter will agree to insure title. In 2015, title insurers paid out more than $900 million in claims. There are various ways that an issue could be missed, making the insurance a worthwhile expense.
First, abstractors, not title examiners, compile an abstract of title from the land records of a given county. Some states require abstractors to be trained and licensed, others do not. If an inexperienced abstractor, or one unfamiliar with the records of a particular county, performs the search something may be missed (prior liens, sellouts, etc.). Second, civil records aren’t typically included in land records (usually just the judgments that result from the civil proceeding), so a judgment that’s invalid or doesn’t identify some owners (missing/estranged heirs for instance) may end up in an abstract. The title examiner won’t identify any issue unless he also pulls the civil records behind the judgment. Third, title examiners don’t inspect the physical property, so they won’t be able to flag things like encroachments (neighbor’s shed built a few feet into your lot), fence misalignments, etc.
So ultimately the best practice as a home buyer is to choose a title company based on the experience of the title attorneys employed and to carefully review the options for coverage, choosing a policy with endorsements or enhanced coverage that fits your level of risk aversion.(4 votes)
Technically, a deed is a piece of evidence passed from one owner of the property to one another to guarantee the following owner's righteous possession of the property, isn't it ?(2 votes)- No, a deed is NOT guarantee ... it is a representation of ownership or "title", and Sal explains in the video, a deed is NOT ENOUGH, and deeds or titles have to be searched and preferably officially recorded. A deed is a legal instrument, which may be used as evidence, and many laws and courts require that deeds should be officially recorded to be used as evidence. However, deeds can be forged, and fraudulent deeds can be recorded, since the filing fee is not expensive. So if you rely on the deed to be evidence of the previous owner's valid ownership, and even if you record that deed, there is NO guarantee that the previous owner had valid or legal title to that property. A deed is evidence, but NOT conclusive evidence.(5 votes)
Do you always have to pay a title search company to get the job done like at2:48? I mean they just go to check the public records, can't you do that yourself?(2 votes)
Not easily. You have to trace the entire history of the property's ownership. That's what the title insurance companies have done, and they have it in their databases.
And if you are taking out a mortgage the lender is not going to trust you when you say "I checked the public records"(3 votes)
At2:35, Does the brother-in-law still have to pay off any dept?(2 votes)
I think that would be part of the overall inheritance process. The beneficiary of the deceased persons' estate still has to pay off all the estate's outstanding legal debts - including the mortgage, any assessments against the property, property taxes, etc.(2 votes)
What would happen if you didn't have title insurance for the property and then someone files a lien against the house for ownership? I'm curious.(2 votes)
2:48Video transcript
- [Voiceover] So let's say in
1950, let me write this down, in 1950, there was a plot
of land that the city owns and says, hey, you know what,
we could use some revenue, or we would want someone to build a house. There's a housing shortage in this city. Let's sell it to someone who maybe might build a house on it. So you have the city,
who is the original owner of this particular plot of land, and they transfer title of
that plot of land to, let's say it's a developer who's
going to be the first owner. So, they transfer title of
that land to a developer. So, I'll just call them the
developer right over here, and when they transfer
title, they record that by filing a deed, so filing
a deed with the county. And you sometimes file it with the city, sometimes with the county. So, this is at the county's
office right over here. So, this is the county. We're going to assume that we filed these things with the county. All right, fair enough. Let's say the developer lives
in that house for some time. Actually, maybe the developer lives in that house for a while, and he and his wife, they
unfortunately pass away. And so it gets, in 1970-- So, let's say it's in
1970, they pass away. And so, in their-- And maybe they didn't even have a will, and so it just gets transferred
to their closest relative. And let's say that the
developer had a brother-in-law is the closest relative,
and so the property gets transferred to the brother-in-law. So let me write this down, brother-in-law, brother-in-law of the developer. Brother-in-law of the
developer now has title, and that will be reflected. That will be reflected in another deed. So, let's call this deed one, and this will be recorded in
the county recording office. This is deed two. And then, let's fast forward now to 2000. The brother-in-law and his family has lived there for a while. And so, now it is the year 2000, and they are looking to sell the house, and there is a buyer who's
interested in that house. So this is, we'll call this owner three, but before she buys the house, she prudently wants to do-- wants to make sure that
the title is clean, that this brother-in-law
really does have title, that has ownership, not just
possession of the house, that there aren't any liens on the house, some back taxes or some
contractor that did work that claims it was never
paid, whatever it might be. So she, owner three, hires
a title search company to do a title search, and they go to the county recording
office, and say, okay, look, it was sold from the city
to the developer in 1950, and then the developer and his
family passed away in 1970, and so then it was transferred legally to the brother-in-law. And so they say, hey, the title is clean. You can buy this house. So owner three, she
decides to buy this house. She pays for it, however much money, and then the title is transferred, and the evidence of that
is deed number three. So you might say, okay,
this is all good and well. This seems like a very
reasonable thing to do. She has nothing to worry
about, but what if, what if right after owner
three pays all of this money to the brother-in-law, let's say in 2001 someone shows up and says, hey, look, I was the developer's long lost child. I had the rights to this,
not the brother-in-law. So, I lay claim. I lay claim to this house. So, this right over here. So, someone says this should have been me. This should have been me. And so, therefore, they claim that this was not a valid transaction. If this isn't a valid transaction, then this also is not a valid transaction, and then they could take
this whole thing into court, which is not going to be a pleasant thing. It's not going to be a
pleasant thing for owner three. So, I know what you're thinking. How does an owner three protect themselves from some random thing that
might happen like this, especially because a house is the most important transaction you make? If this happened, you get
bogged down in a big lawsuit, and who knows what might happen. This could be a nightmare for owner three, and that's why title insurance exists. Title insurance. The whole purpose of title insurance is, okay, you should do a title search. You should make sure
that the title is clean, that there aren't any
liens or encumbrances, any claims to the property, and that everything has been filed. You would also have a nonclean title if somehow these people
didn't file this properly, if deed two is shady or didn't have all of the proper language. But even if you do all of that, you're not 100 percent sure
that there might not be some other weird or bizarre claims or that something might
have been overlooked in the title search. And so, to protect yourself,
you get title insurance, and most lenders, because most of the time when houses are bought,
the lender is putting up the majority of the cash for it, and in the case that the
borrower isn't able to pay it, the lender takes possession of the house, most lenders make you get title insurance, so that they can be protected
for this exact scenario. Now you can imagine, let's say owner three took out a mortgage,
and then all of a sudden all this craziness happens. It might be easier for
them to just walk away from the mortgage, and then the bank is left with all of this messiness. So, the bank has a huge incentive
to have title insurance. And the whole point of title insurance is to protect this owner or the person who comes into ownership of the house, from any of this messiness
that might actually ensue. So although a bank, whoever
is giving you the loan for your house, might insist
that you have title insurance, it's probably a good
idea, even if you were buying the house in cash,
even if no one was forcing you to do it, just so that you make sure that you're protected against
these type of things. And just to be clear,
it's not a hugely costly type of insurance, because
these things are rare. So these are rare events,
but you still want to protect yourself against them happening.