Title insurance is insurance for which only one premium is ever paid. It insures you for certain deficiencies in the title of the property in a real estate transaction. You are insured all the way up to the point that the deed to you is recorded. In other words, it insures against defects in the past prior to your ownership that relate to title.
For example, if I were to get a “general warranty deed” from a seller, that means that the seller is giving me warranties that certain statutory title issues relating to the property in the past are fine, and he has a good title to the property that he is conveying to me. However, the seller may disappear or become judgment proof I may not be able to seek any satisfaction from him should an issue with the property arise.
Title insurance protects the buyer in this situation so that you are insured that you are getting good title.
Hopefully it’s a good title agency with an underwriter that is national in nature and will be around for decades. Therefore, if a problem arises years down the road, you have recourse for those defects against your title insurance policy for up to the amount that you purchased the property.
Sometimes defects cannot be seen by merely looking at a title search of the property. For example there may be a forged deed in the chain of title to the property that looks appropriate in a search. What is interesting and good about title insurance is that it insures you against problems such as forged deeds.
Title insurance has exceptions. Like any insurance company, they want to limit their liability, and they will have exclusions on that policy. So, you cannot simply rely on the title company to fully protect your interests at the closing.
As your attorneys, we review the title commitment for you (It’s not the policy yet – you don’t get the policy until you close). When we review the title commitment, we see what the title company claims is affecting title. Very often the title company will claim that certain matters affect the property which actually don’t, or put exceptions that should not apply to your property. In addition the title company will always include what they call their standard exceptions in all policies.
Every time we do a closing for a buyer, we request that certain of those title insurance policy exceptions be removed. Most title companies will follow what we request regarding removal of certain standard exceptions and if we are able to show that any other exception should not apply to our property, they generally will remove it from the policy. This results in more protection for our clients in the transaction.
Insuring the “gap”
In title insurance policies, there is often an exception for anything that might happen between the time you close and the time that the deed gets recorded. Therefore, if a lien should be filed in that time period, you’re not insured (the “gap”).
We, as your attorneys representing the buyer, request that the title company insure “through the gap.” We ask that title company remove that exception so that we are insured the moment we close. The better title companies will comply with that request.