What is Title Insurance

Prior to closing on your new home, your real estate agent told you that they have ordered title insurance for you, and you will see a credit on the settlement statement for that expense, and that there might be a date-down fee tacked on, too. You remember seeing something in the contract about the seller providing you with title insurance, but since it was a boilerplate contract, you did not pay much attention.

Now is the time to pay attention.

Title insurance is your assurance that nobody else has a viable claim to ownership of your new home, or sometimes even worse, use of the property. You want to receive a “clean” title to the property, without encumbrances or unacceptable liens or easements.

Title insurance companies maintain detailed archives of records on properties in the areas in which they operate. Some companies operate on a national scale, while others are very localized and only serve one or two counties or parishes.

What they all have in common is that they do a detailed analysis of the records that have been recorded with the local county clerk, not only affecting the property, but the seller of the property, too. The title insurance company will issue a report on the condition of the title, along with a list of any exceptions. You must pay particular attention to any exceptions listed, and notify the seller immediately if any of them are unacceptable to you. You should review the report personally, and have your attorney review any questions you might have with you.

Say, for instance, the seller had the plumbing in the house repaired in the last four months, but “forgot” to pay the plumber when the bill arrived. Notice of an impending mechanic’s lien may have been filed with the county clerk, and now there is a “cloud” on the title, meaning the seller cannot give you a clean deed. In most cases, you as the buyer can demand, and receive, a credit at closing to pay off that lien.

Trickier clouds on a title involve easements. Easements give someone else the right to enter onto your property for a specific purpose. However, some of those easements may have been granted a century ago to a utility or oil-drilling company, giving them free access to any part of what was then an empty field. Today, there could be hundreds of homes sitting there – all subject to that same easement. Not many homeowners want to see an oil well suddenly sprout up in their front yard, but it could, and has, happened.

Some title companies will issue insurance for certain exceptions, based on what their underwriters perceive as the risk involved. This added cost may not be specified in the contract for sale, and an object for negotiation between the buyer and seller.

Getting a “date down” report is important, especially if there is a long delay from the time the original commitment for title insurance was received and the actual closing date. The title insurance company will usually require this report if the closing is going to occur more than a few days in the future. The “date down” report looks at the records from the date of the commitment to today, and notes any activity that might be problematic for you, the buyer.

If any problems with the title are found after you buy a home, and it was not listed as an exception, the title company will have to bear the expense of clearing that problem from the title to the property. Most lenders will require this form of insurance when you buy a home, to secure their lien (mortgaged interest) against the property.