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Title is a collective term that encompasses your legal rights to own, possess, use, control or dispose of real property - land. Title takes into account all previous land ownership, uses and transfers of land use and ownership. In order to legally transfer real estate property, you must perform a title search to determine the title is clear or free of defects or inappropriate encumbrances.
A title defect is a problem or omission associated with the title that impairs your ownership rights to the property. Possible title defects include errors or omissions in the public records, forgery, confusion caused by similar or identical names, signatures of minors, mental incompetence, fraud, incorrect marital status, etc.
For example, a title defect could be an undisclosed heir of a previous owner suddenly appearing to make an ownership claim on your land.
An encumbrance is a claim made upon the land by someone other than an alleged landowner. For instance, your local power company may have an easement - a limited right to use your property - to install electrical power lines to serve your house or your neighbor's.
While a utility easement is often an appropriate encumbrance, other encumbrances may not be acceptable. If you are borrowing money to purchase your house, your lender will want assurance that no one else has a claim against your house - the collateral for your loan. Therefore, your lender will require clear title - title free of any outstanding defect or unacceptable encumbrance - before approving the loan.
Land is permanent, although land usage can change over time. A landowner can transfer various rights from the title, such as mineral, water or utility rights while still maintaining title to the property. If you are considering a purchase of vacant land, for example, you should consider its history to determine possible unacceptable prior usage (i.e., landfill, pollution, etc.). You and your lender should search the title for any defects or unacceptable encumbrances.
Title insurance is a contractual obligation between you (and/or
/your lender) and the title insurance company, wherein the title insurer, in exchange for a premium payment, provides protection (effective as of the date the title insurer issues the policy) against future losses that might result from a variety of possible title defects or encumbrances.
Actually, there are two types of title insurance policies to consider- a lender's policy (also known as a "loan" policy) and an owner's policy.
A lender's policy protects the lender's investment by paying the mortgage in the event that a title defect voids the owner/buyer's title to the property. Typically, a lender's policy does not represent the full property value and the amount of policy protection decreases as the mortgage balance decreases over the life of the loan and terminates when you pay off the mortgage.
An owner's policy protects the landowner/homeowner against the specific types of claims listed in the policy, usually purchased to cover the full property value. While lenders generally require a lender's policy as part of the real estate transaction, an owner's policy is usually optional. An owner's policy protects against any title loss covered by the terms of the policy, which insures the value of the property and lasts as long as you or your heirs retain an ownership interest in the property.
In addition to title loss coverage under a lender or owner policy, a title insurer must also pay for any and all costs associated with defense against title challenges and, if unsuccessful, the title insurer must also pay for any reduction in land value as result. You pay for an owner's policy only once, at the close of escrow – there are no continuing monthly premiums.
The title insurer conducts a detailed examination of the historical, public records concerning the property. These records include deeds, court records, property and name indexes and many other public documents.
The purpose of the search is to verify the seller's right to transfer property ownership and to discover any defects or encumbrances on the title. A title search should show all title defects and encumbrances as well as judgments, liens and other restrictions (i.e., unpaid taxes, unsatisfied mortgages, judgments against the seller, land-use restrictions, etc.).
Remember, the seller's title policy does not protect you as a buyer. Any title defects could have begun during the seller's ownership and a new title policy will protect your ownership rights when you acquire the property.
Title insurance protects you and/or your lender from losses resulting from claims against your ownership of real estate. It is unique because it provides coverage for problems or "hidden risks" (errors, forgeries, unpaid taxes, etc.) that possibly occurred before you took title to the property, yet can jeopardize your ownership rights. Title insurance coverage includes:
You can obtain title insurance from any licensed title insurance company or its agents operating in Indiana. Competing title insurers offer different services, costs and fees for title services and rates may vary between companies. By law, real estate professionals cannot dictate which title insurer (or title agency) you must use – so, shop and compare: the choice of title insurers is yours.
As soon as you discover any title-related problem that could impair your ownership rights, contact the title insurance company listed on your owner's title insurance policy, and have your policy number available.
You should make claims in writing and include copies of all relevant documents, such as payment demands and correspondence relating to the title dispute or claim. Keep copies of everything for your own personal records. The title insurer should promptly acknowledge receipt of your claim, and you should expect the title insurance company to accept or deny your claim in a reasonable amount of time.
IDOI regulates title insurance companies and title insurance agencies authorized to do business in Indiana. You can file a complaint with us if you feel a title insurer or agency has acted in an illegal or inappropriate manner.
Most title insurance transactions are governed by the federal Real Estate Settlement Procedures Act (RESPA). View the Real Estate Settlement Procedures Act: http://www.hud.gov/offices/hsg/ramh/res/respa_hm.cfm
For information regarding Title Insurance or related concerns, please contact:
Randall Evans, Director
Jonathan Handsborough, Senior Insurance Examiner
Nicole Lotter, Senior Insurance Examiner
Constance Cowling, Junior Insurance Examiner
Title Division Fax Number: 317.234.2103