What is Title Insurance
Title insurance provides insurance against mortgage liens which may be invalid or unenforceable. This product was developed and sold in the United States as a means to protect property owners and lenders interest in real estate against loss of income due to a defect in the title, liens and other things which may dispute the ownership of the property.
Title insurance is meant to defend legal action against the property title or in extreme cases to reimburse the person or the company that was insured for the actual loss incurred up to the amount of the insurance. The first title insurance company was formed in 1853 in Pennsylvania and while most title insurance is carried within the United States, it is also available in Canada, Australia, United Kingdom, New Zealand, Korea, China, Northern Ireland, Mexico and throughout Europe.
Title insurance can insure any interest in real estate, including leased property, life estate property or an easement. With the exception of non-institutional lenders, nearly all real estate lenders do require title insurance to protect their collateral interest in real estate much as they would require fire insurance.
Because of deficiencies that exist in United States land record laws, title insurance is used to protect title ownership and encumbrances based on the registration of a title (deed) which occur as a result of transferring property or anything else that may affect the title. With a few exceptions any determinations that are made by the governing body, their determination is final and errors can lead to damages that typically cannot be recovered.
Most jurisdictions (excluding Minneapolis, Minnesota and Boston, Massachusetts) have opted for document recording that has no governmental determination of who owns the title to a given property nor do they have any method for determining whether a transfer is legal. Currently, the recording system provides that when a title transfer takes place, the transfer documents are filed with the local recorder (Registrar of Deeds or other agency) where the property is located. Once this is accomplished, the title is indexed by the name of the person transferring the property and the name of the person to whom the property is transferred and is considered a public record that can be obtained by anyone who wishes to request it.
In the event that the transfer instrument is not recorded, future buyers of the property may not know who actually owns the property and determining that ownership requires that scrutiny of the deeds and all documents that may be associated with it. This is often a cumbersome procedure and because of that errors will be compensated only to the limit of the liability insurance that may be carried by the responsible parties. Too often, opinions regarding title are not uniform and ensuring accuracy can be a long process.
Because of this, a recording system to create policies for those who purchase real estrate (or interest) is used by Title Insurers, providing that a premium is paid. In this case, employees or agents of the title company will handle researching all of the records that area associated with the title (deed) and make a final determination of ownership based on that search. This makes it much more efficient for real estate lenders who often have a significant investment in property and since the liability lies with the title insurance company (assuming there is a title insurance policy) the insurer pays for all costs that might be associated not only with these searches but any legal issues over the property.