An insurance policy is a legally binding contract between an insurance company and the person who buys the policy, commonly called the "policyholder", who also is often the person insured.
In exchange for payment of a specified sum of money, called the "premium," the insurance company agrees to pay for certain types of loss or damage as specified by the contract. When a loss occurs which meets all of the requirements described by the terms of an insurance policy, the loss is said to be "covered" by that policy. The term insurance policy refers specifically to the written contract. You probably have other documents that may or may not offer you additional rights, including your application, any correspondence from the insurer, summary plan descriptions (for disability and medical insurance), and your declarations page (often shortened to “dec” page).
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To understand title policy insurance in America, let's look at chain-of-title and how title companies search the public records. Title insurance companies aren't really concerned with where dinosaurs once roamed, whether our ancestors trekked across the Bering Straight or where American Indian tribes settled. Title searches begin with when the United States government stole the land, I mean claimed it -- from the U. S. patent -- and move forward from that point.
Because humans are involved in recording deed transfers and plotting land parcels, a lot can go wrong. You want title insurance because it will protect you against defects and human error.
Property Searches and Public Records
Property transfers were first recorded alphabetically in separate Grantor and Grantee books.
The books are heavy to lift and dusty.
County records are often maintained at local courthouses or the Clerk of Registrars.
Today, most records are stored on the computer.
Division of Land
Early deeds involved large chunks of land known as Townships.
Townships contain 36 sections and are six miles by six miles.
Sections measure one mile by one mile and contain 640 acres.
Half of a section is 320 acres.
1/4 of a section is 160 acres.
1/4 section of 1/4 section is 40 acres.
An acre is 43,560 square feet
Title Search Basics
Title searches start with the most recent deed, searching the grantee's name (the person now holding title) backwards in time, until the deed when the grantee acquired the property is located.
That grantor's name is then searched backwards in time in the grantee's book to find when the grantor acquired title as a grantee.
This process continues, and over time, the property description involves larger and larger parcels of land.
Eventually, the searcher finds the U. S. Patent.
Other Factors Affecting Title
Deeds establish chain-of-title, but sometimes those chains are broken. In addition, title searchers also look for reconveyances (proof that the encumbrances are paid off), and they look for easements, rights-of-way, CC&Rs, other elements affecting title to the property. Here are more records that are searched to piece title together:
Marriage records
Death certificates
Tax sales
Title Insurance Coverage
Depending on the title company, consumers can choose among a variety of options, but the top three choices are Owners, Lender's and Extended Coverage.
Basic Owner's Title Policy Coverage:
Clear title to the property
Incorrect signatures on documents
Forgery, fraud
Defective recordation
Restrictive covenants
Encumbrances or judgments
Basic Lender's Title Policy Coverage:
Mechanic's liens and unrecorded liens
Unrecorded easements and access rights
Defects and other unrecorded documents
Extended Owner's Coverage
Building permit violations from previous owners
Subdivision maps
Covenant violations from previous owners
Living trusts
Structure damage from mineral extractions
Variety of encroachments and forgeries after title insurance is issued
Who Pays For Title Policy Insurance?
This depends on your local custom.
It can differ from county to county, but it is also negotiable in the purchase offer.
Sometimes sellers and buyers split the fee for the owner's policy.
Typically, the buyer pays for the lender's coverage.
How Long Are Title Policies Good For?
Forever, theoretically. If you are planning to resell the property within a couple years, ask your title company about "binder" coverage. Most companies will sell you a binder policy for 10% more. A binder is good for two years, often can be extended beyond that time, and the fee charged for the new buyer's policy will be the difference between what you bought the property for and the price at which it sold. In other words, you will get a credit for the amount of coverage you purchased under your own Owner's Title policy.
How Often Are Title Policy Insurance Premiums Paid?
Once. The fee is due when you buy. You will never pay it again. Title policy insurance is the best insurance policy you can ever buy.
At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.
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