Washington State is a title insurance state, In other parts of the country, title insurance is replaced by title opinions prepared by “abstractors” and/or attorneys.
An abstract of title is simply a recitation of the facts discovered through an examination of the public records. An attorney who reads the abstract and issues an opinion as to the vested owner and any monetary encumbrances affecting the subject property usually prepares the Opinion of Title. The Opinion of Title carries no insurance and no protection for the buyer or lender against future claims.
Title insurance is almost an invisible product in a real estate transaction. Although it carries insurance protection, consumers seldom read or discuss their title insurance policy.
It is important to note that in most sale or refinance transactions involving a lender, the condition of the title may affect loan approval as the lender could refuse to accept a policy with understandable encumbrances that might not be removed.
At Guardian Northwest Title & Escrow, we believe strongly in consumer education, and in keeping all our intermediaries fully informed as to the products and services we can offer to help them and their customers enjoy a smooth and pleasant escrow and title experience. The following should bring light to questions consumers typically ask about title insurance.
What is Title?
Title is often referred to as the “bundle of rights” which constitutes ownership of a piece of real property. The ability of the seller to deliver clear and marketable title is a condition referenced in many sale agreements, “Title” is what the seller sells and the buyer buys.
It is possible to convey, or transfer title without selling all the rights in the “bundle”. For example, a seller may reserve, or keep, mineral or crop rights and sell them to another party.
Such reservations would need to be disclosed to the purchaser and accepted by him and potentially his lender, as a part of the sale agreement.
Doesn’t a deed prove ownership?
No. A deed only conveys the rights of ownership that the person signing the deed has to convey. A deed does not necessarily disclose the condition of the title nor negate that interest(s) that others may still have in the property.
What Is Title Insurance?
Title insurance is a legally binding contract, issued following a complete title search of the relevant public records. A title insurance policy protects the insured from matters of public record except those matters specifically reserved from coverage in the policy.
Title insurance also protects against certain losses a title search could not disclose such as fraud, forgery, mental incompetence of former owners, missing heirs, and defective deeds.
Who needs Title Insurance?
Title insurance was originally designed to protect the interests of property owners. Today there are basically two types of policies – an owner’s policy or a lender’s policy.
The seller generally provides the owner’s policy to the new buyer. It states the condition of the title at the time of purchase and promises to defend the insured’s rights of ownership or interest in the property.
The lender’s policy is provided to the lender by the buyer. This policy insures the lender’s security interest in the property that is collateral for the loan.
A title insurance policy may also be issued to a purchaser under a land sales contract. This policy is convened to an owner’s policy when the contract is satisfied and the deed is recorded.
What happens if a claim is filed against the property?
Should a problem arise that results in a claim, title insurance guarantees to satisfy any valid claim up to the face amount of the insured’s policy.
Title insurance also provides for a legal defense against the claim, and payment of all court costs and related fees.