Title insurance covers both the buyer and the mortgage company from a number of defects in title. The many benefits of title insurance includes better protection than a lawyer's opinion, at a similar price, piece of mind, and protection from unforseen claims on title. However, title insurance can have some disadvantages, including a slightly higher cost than a lawyer's opinion. Title insurance enables constructive notice, and is useful to reduce workload and liability in a legal environment.
Title Insurance is simply an insurance product like many others. In the simplest possible terms, the insured pays money (a premium) to an insurance company in exchange for an insurance policy that quarantines that the insured has a valid, marketable title to the insured property.
Title insurance does not absolve the insured (or at least the insured's layers) from needing to conduct a number of title searches, as specified by the insurer. However, the number of searches required are much less than would be needed if title insurance were not purchased. Once the searches are completed, the insured's lawyer's report to the insurer, and a policy is produced. Importantly, this policy protects both the purchaser of the property and the mortgage company "against loss of marketability as a result of title defects not excluded or excepted" (Eyton-Jones).
Title insurance covers title defects, a term that can include a wide variety of title issues. Outstanding work orders, and outstanding taxes are considered title defects, and are insured under title insurance policies. Interesting, in the case a mortgage being discharged because mortgage documents were forged, title insurance would also cover this defect (Eyton-Jones).
Title insurance has many clear benefits to all parties involved in property sales. Title insurance offers coverage that is broader than a lawyer's opinion, at about the same price. The cost is similar because title insurance companies require that fewer searches be completed (Eyton-Jones). In addition, title insurance can be valuable in obtaining a mortgage as many lenders will not agree to finance property without title insurance (First Montana Title Co. Of Helena).
Importantly, title insurance offers both the mortgage company and the property buyer great piece of mind that the title of the property is valid and marketable.
Title searches can be complex, and mistakes often occur through omission, error, or simply the unavailability of information. For example, unofficial or forged documents are sometimes filed on property, there is the possibility that unknown or undisclosed heirs could contest an estate settlement, and it is possible that an undisclosed spouse could have a claim to property (First Montana Title Co. Of Helena).
Despite the clear benefits, title insurance can also have some disadvantages. Title insurance is occasionally more expensive than a lawyer's opinion. This amount is relatively small, at a cost of approximately 50 or 60 USD (Eyton-Jones). In addition, there may be cases where title insurance cannot fully protect the mortgage company or purchaser of the property in question.
Consecutive notice plays an important role in the issue of title insurance. Consecutive notice is simply defined as "the recording of rights transferred with the purchase of property" (First Montana Title Co. Of Helena). More simply put, constructive notice covers information that the property owner and mortgage company are legally assumed to know, given that this information can be readily discovered through "proper diligence and inquiry" (Forclosures.com). This information includes, but is not restricted to, information that is contained in public records.
Title insurance enables constructive notice through requiring the purchaser and the mortgage company to conduct a number of searches on title. However, title insurance allows the insured to be covered in instances where it is less clear whether they have taken "proper diligence and inquiry" (Foreclosures.com).
Issues involving constructive notice can be complex, even for those involved in the legal profession. The California Land Title Association notes that the U.S. federal court has decided that Stewart Title, a title insurance company that operates in the United States, did indeed have constructive notice in a title defect dispute because of a title plant that was improperly indexed.
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