2.1 Title Insurance

Q. Name three facts about title insurance

1. It will generally include exclusions for unrecorded easements 2. It will insure the owner against losses arising from title defects 3. The policy will include a list of title defects that are not insured Title insurance & homeowner's insurance are two different things. Homeowner's insurance insures against damage

6 Rights in the Bundle of Property Ownership

1. Possess 2. Control 3. Enjoy 4. Exclude 5. Encumber 6. Dispose

Title Insurance, Title Searches

A physical examination performed by an individual known as an abstractor (or title examiner), who physically examines the public record in order to determine whether title is marketable or insurable (for title insurance) and to create a title abstract. In most states, the seller and buyer agree on the status of title based on the abstract of title, or title commitment.

Q. A condensed history of the documents affecting real property is known as:

An abstract of title An abstract is a condensed history (based on a title examiner's search) of the title to specific real estate

Title Insurance, Title Searches, Certificate of Title

Certificate of Title: A title examiner's final opinion, based on a title search, of whether title to property is marketable or free from defects. The certificate of title serves as the basis to issue title insurance, which is usually required by a mortgage company for the buyer to obtain a loan to purchase the property.

Title Insurance, Removing Title Defects

Depending on the nature of the defect, it often can be removed easily and the closing can occur. For example, if an old, paid-off mortgage has never been released, but there is proof it was paid and the lender is willing to stipulate it was paid, the recordation of a release document will remove the defect. Other title defects are not easily removed, such as a deed in the chain of title that was not joined in by all the required parties. In such case, the owner may have to institute a "quiet title" action in a court to remedy the defect. Usually, the contract provides that if the seller cannot remove the defect on the title within a set period of days, the borrower is no longer obligated to purchase the property and the deposit will be returned.

Transfer of Title, Equitable Title

Equitable Title: The right to receive legal title after completing specified performance, like payment in full on a mortgage. Unless otherwise agreed to, equitable title itself may be transferred from one person to another.

Transfer of Title, Marketable Title

Marketable Title: Title, also known as merchantable title or perfect title, that is reasonably free from significant title defects. Title defects include competing claims or interests.

Title Insurance, Title Defects

A defective title means that the title is not marketable. One example of a defective title is land being sold by a party claiming to have good title, but which is actually owned by someone else. Other defects may include: - Improper recording of ownership - Failure to include the signature of a party that is necessary to the transaction, such as a spouse - Previous liens and other encumbrances have not been removed (the title needs to be free of encumbrances to be marketable) - Mechanics lien if the seller failed to pay the contractor for an improvement to the home. The contractor can place a lien on the property for his/her unpaid labor. - Tax Liens if an owner failed to pay his/her taxes and a certificate was sold in the amount of the unpaid taxes.

Title Insurance, Recording Acts, Constructive Notice

Constructive Notice: Following the requirements of a recording act creates "constructive notice" of properly documented encumbrances to any interested party. Constructive notice imposes notice on all interested persons regardless of whether they actually examine the public record or not.

Title Insurance, Policies

Policies - Generally required by lenders, a title insurance policy promises to reimburse the policy holder for specified title defects. If a title company determines that it will insure title, the resulting policy will insure the property owner against losses arising from title defects such as forged documents, undisclosed heirs, misfiled documents, confusion arising from similarity of names, and defective transfers from mental incompetence.

Title Insurance, Title Searches, Procedures

Procedures: Sometimes, an abstractor performs two title searches; the second occurring after closing. The second search may involve obtaining an affidavit of title from the seller, which assures the buyer that there have been no additional judgments, bankruptcies, a divorce, or other material events affecting the property since the title was last examined. Public record sources include the grantor-grantee index for deeds, the will index for wills, and other sources. The grantor-grantee index is a book in which deeds are listed, while the book in which a will is listed is called a Will Index. Title examiners in most states must research the public record at least 40 years prior to the date of examination (exact times vary by state law).

Q. What act serves as constructive notice?

Proper recording Following the requirements of a recording act creates "constructive notice" of properly documented encumbrances to any interested party.

Property Transfer and alienation

Property transfer (alienation) may be voluntary (sale) or involuntary (foreclosure or eminent domain). Alienation is a term referring to any type of transfer of ownership of real property. Generally, courts will not enforce restraints on alienation (limitations on the right to transfer property) unless the restraints are reasonable and limited in duration. The right to dispose or transfer real property from one owner to another is one of the principal legal rights of property ownership (bundle of legal rights). A fundamental rule of property transfer is that people cannot transfer a greater interest than they possess.

Title Insurance, Recording Acts

Recording Acts State laws that establish procedures for recording title records (what must be recorded, how, and where) and priority (order of payment) among competing interests. Recording Acts create a local public record available to property owners, prospective purchasers, and the general public.

Title Insurance, Policies, Subrogation

Subrogation: Most title insurance policies contain subrogation clauses. If the owner makes a claim on the policy, a subrogation clause grants the insurer the same rights and remedies that the owner has. That is, if the owner could sue a third party for damages arising from a hidden cloud on the title, the title insurance company has the same right as well (competing claim, insurer steps into policy holder's shoes).

Q. A court action to remove a defect from the title is called an action or suit:

Suit to quiet title A court action (suit) for the removal of a defect or claim against the title of a property is called a suit to quiet title.

Title Insurance, Policies, Survey

Survey: Title insurance companies generally require a recent survey of the property (usually required before title insurance will issue). A survey measures the boundaries of land and locates all improvements such as buildings, fences, and driveways. Surveys may also discover the existence of easements, encroachments, and setback requirements.

Title Insurance, Title Searches, Title Abstract

Title Abstract: A condensed history (based on a title examiner's search) of the title to specific real estate, including all relevant documentation regarding transfers, conveyances, encumbrances, and other recorded information that is relevant to the marketability of title. A large portion of the abstract describes the chain of title. The chain of title traces ownership back from the present owner to each previous owner or other interested person.

Title Insurance

Title Insurance: A type of insurance that protects the buyer if problems with the title are found later. Risk management tool that offers policy holders limited protection against title defects or encumbrances that are discovered after real estate transfers. It reimburses the policy holder for any undiscovered and competing claims or interests in title (title defects, clouds on title, or encumbrances) that arose before property transferred.

Title Insurance, Recording Acts, Title Records & Location

Title Records: Documents which affect an owner's title, interest, or rights in or to real estate, including deeds, mortgages, deeds of trust, liens, zoning, and building ordinances. Location: Title records generally are recorded locally (city or county of subject property).

Title Insurance, Title Searches, Title by Estoppel

Title by Estoppel: Legal principle, also known as deed by estoppel, whereby a person obtains title to real estate over the apparent owner, because the apparent owner failed to provide proper public notice of his ownership interest. Title by estoppel protects innocent purchasers where the true owner fails to follow recognized recording procedures. EXAMPLE: A buyer fails to take possession of his property and fails to record his deed. The original seller fraudulently sells the same property to a second buyer who has no knowledge of the prior sale. The second buyer records and/or takes possession. The court may recognize the second buyer as the true owner, in which case the first buyer will be estopped (stopped) from belatedly proving his title, despite any such claim he may otherwise have.

Title Insurance, Policy Exclusions

Title insurance policies include exclusions, which are particular title defects that the policy will not insure. Exclusions generally include rights of parties in possession (including unrecorded easements), any facts that an accurate survey would reveal, taxes and assessments not yet due or payable, and zoning and government restrictions that may arise after the policy issues.

Title Insurance, Title

Title: Status of owning all 6 rights in the bundle of property ownership (possess, control, enjoy, exclude, encumber, and dispose) and the physical evidence of such ownership (deed). Title may be limited by time, depending on the type of estate, or by the interest of another (encumbrance).