Property Titles and Title Insurance
What is a “property title” and why do you need insurance? Title spells out ownership of the property. When you are buying a property you want to make sure it is free and clear of any liens (obligations to pay other people secured by the property such as back taxes due). Additionally, a title will spell out any easements that might allow neighbors or utility companies usage of your property. You may even find a dispute with the property line that will good sleuthing with the County records department to make sure your true lot size had been recorded correctly.
As a buyer, a Property Title search is conducted to examine past records of ownership to see if past owner’s mortgages have been paid off and no third party claims have been attached to the property, for example, a legal judgment (i.e. divorce) against the previous owner. Inquire about how far back this will go; the longer the better. Some people are learning about easements that didn’t get recorded properly when their county switched to electronic records. No one likes surprises post closing!
At closing, you will need to select how you will “hold” title in your new property. The common Title designations are:
- Sole - An unmarried individual buying by themselves simply can put the title in their own name
- Joint tenancy – When a married or unmarried couples purchase a home together, there are more options. Selecting rights of survivorship allows the property to pass the other party upon death of the spouse or partner. There are usually tax advantages for the survivor with this transfer.
- Tenants-in-common – When multiple parties hold an ownership interest in the property as tenants-in-common, they may have different ownership percentages and can sell their interests independently. Often called a TIC, an additional agreement may determine how someone can sell their interests as well as how maintenance expenses will be shared.
It is recommended that you explore the pros and cons of these various options with your estate planner, lawyer, or tax advisor. For example, if you have a Living Trust, it may make sense to hold Title using the name of the Living Trust.
Title Insurance is a means of protecting both you and the lender; it insures that the information about the property’s description, previous ownership history and financial obligations ties are correct. It is a one-time, up front payment which typical varies in proportion to the purchase price of the home.
Title Insurance policy coverage and pricing can vary, so work with your agent or lawyer to make sure you are dealing with a reputable firm and paying the market price for this service. If a dispute subsequently arises from an overlooked document, the policy should protect you for the full sales price of the home. It is important with any insurance policy to read and understand the policy.
Title Insurance is purchased at the closing of the property. The Lender typically seeks a policy for the amount of your mortgage obligation.
Who pays is negotiable and usually a function of local market conditions. A buyer might pay the bank’s policy and the seller might cover the buyer’s.
Many states and the federal government are investigating pricing practices in the Title Insurance industry. Hopefully, this will result in more competitive pricing.