In real estate, a title is a document that gives the owner of a property the right to possess and use said property. Titles can come in many different forms depending on how the ownership of a property is divided. A title can indicate single ownership, tenants in common, joint tenants, life tenants, and other specific forms of property ownership. Each type of title will provide the individuals listed on the title with different ownership rights. As the title is transferred in a sale, the ownership rights for the property also transfer. Many title companies and mortgage servicers will encourage or even require property owners to get title insurance for this crucial document. But do you really need it?
Here we will look at the purpose of a real estate title and the importance of title insurance.
Who Has Ownership Rights for a Property?
The individual or individuals listed on the title of a property have specific ownership rights indicated by the type of title. Titles can also indicate the designated use for a particular parcel of land. The rights of the owner(s) of the property will differ depending on the designated use of the land. Different owners can also have different property rights for the same property based on the use of their title. For example, one owner can have mineral rights while another has utility rights.
Parties other than the owners listed on a title can have interest and rights to a property. A mortgage lender can have a financial interest in a property. Any construction companies, builders, or contractors who have done work on the property also have an interest and could file a lien on the property if they are not compensated for their work. The government can file a lien for unpaid taxes.
Some properties can include easements, which grant specific use of a portion of the property to neighbors or others who do not have rights to the property. This is common in beach towns where access to the beach goes through an individual's property or where neighbors share a driveway.
What Happens During a Title Search?
Before officially transferring a title to a new owner, hiring a real estate professional to perform a title search is highly recommended. Searching title records can help you find any issues hindering your ownership rights, like judgments or liens. A title company or a real estate attorney can perform a title search to ensure the title for the property is clear. Many mortgage lenders require a title search before loan approval. A title search will provide a complete understanding of your ownership rights to the property and any limitations to those rights due to outstanding liens, judgments, or financial obligations.
What is Title Insurance?
When you get title insurance, the title insurance company will thoroughly investigate the title's history. Any issues they find before the title transfer will be the title company's responsibility to fix. The title company will insist that the seller of the property correct any defects with the title prior to closing. Issues can include:
- Improper vesting via wills, deeds, or trusts
- Mortgage, judgment, or tax liens
- Undisclosed easements
- Inaccurate notary acknowledgments
Most of these issues can be resolved before the transfer of the title. If the problem cannot be resolved prior to closing, the title agency will then list the problem as an exemption on the title's insurance policy. At this point, the buyer has the right to back out of the contract.
Do I Really Need Title Insurance?
Many homeowners ask: If I perform a thorough title search and it comes up clean, do I still need title insurance?
Veitengruber Law's answer is YES!
While a thorough title search should reveal any issues with the title of a property, a search is not absolutely certain. Even the best title researchers can miss a judgment, lien, or other hindrance on the property. While the person performing the search may be the one to overlook the issue, you, as the new owner, will be the one responsible for correcting the problem. Obtaining title insurance is the only way to ensure that you will not be left holding the bill if you discover your property is encumbered by prior issues.
Even if the title insurance company's search does not reveal any problems and one arises later, the issue will be covered under your title insurance policy for the property. In this instance, the title insurance provider will work through the problems with the property for you even if the issue is discovered after closing.
Remember that your title insurance does not cover anything that happens to the title or the property after purchase and the transfer of the title to your ownership.
So while paying for title insurance seems redundant, it is the best way to legally and financially protect yourself from any problems related to your property prior to your ownership. Veitengruber Law recommends a thorough title search as well as good title insurance. We are an experienced real estate firm in New Jersey. We can help you protect your investment now and for years to come.