By Matt Gerchow
The author has permitted the reprinting and redistribution of this article.
Checking Title and Title Insurance
A clear title is what gives you the right to purchase, own and possess the property. It’s hard to watch the news on a regular basis and not see something related to title fraud.
After you secure your contract, you fax or email a copy over to your title agent. They can usually pull a very quick search known as ‘an abstract’, to let you know if there are immediate issues you need to deal with.
A title search is a detailed examination of the historical records concerning a property. These include deeds, court records, property name indexes and any other filed documents.
The purpose of the search is to determine that the ownership of the property is clear of liens, additional mortgages and other claims against it.
A title search can uncover title defects and liens, as well as unpaid taxes, unsatisfied mortgages, judgments against the seller, and restrictions limiting the use of the land.
Title insurance protects you against any possible hidden hazards which were not uncovered during a title search, such as the previous owner incorrectly stating his marital status resulting in a claim by his legal spouse. Then there is fraud, forgery, defective deeds, mental incompetence, confusion due to similar or identical names and clerical errors. Unlike other forms of insurance that focus on possible future events and charge an annual premium, title insurance is purchased for a one-time payment.
There are two types of title insurance policies. One is a loan policy and the other is an owner’s policy. The loan policy is to protect the lender’s outstanding balance on the buyer’s mortgage. The owner’s policy protects the buyer against other people’s claims of equity in the property.
Although, title charges are different for each area of the country, title insurance costs usually run about one percent of the cost of the property.
Unlike other insurance premiums, which are paid annually, a title insurance premium is paid one time only, usually at settlement and lasts for as long as you or your heirs own the property.
If a claim is filed against your property and you don’t have title insurance, you stand the possibility in an extreme case of losing the property and still being liable to pay the mortgage.
On one occasion during a double closing, I elected to make an extra $1,500 on my assignment fee and not purchase Title Insurance on the first closing. Turns out the tenant in the property had an Agreement for Deed from 1974 which had been negated in 1975, but never had been foreclosed off. The loss ended up costing me $20,000 for a settlement and $5,000 in attorney fees. OUCH! Make sure you take title insurance on your double closings! Let me say that again, Make sure you take title insurance on your double closings!
Hope this helps,
If you would like to take advantage of the market and learn how to invest in real estate and you are local to the Dallas Fort Worth area, I know a really great teacher and mentor here in Arlington Texas. Please take a look at his web site: DennisJHenson.com, Dennis has a great Mentoring and training program, I know because I am one of his former students. I learned a lot from his one on one teaching technique. – Michael Harman 817-457-7572 firstname.lastname@example.org