What is Title Insurance?
The title industry is comprised of thousands of professionals across the nation who
search, review, and insure land titles to protect homebuyers and mortgage lenders
who invest in real estate. They also conduct the majority of real estate closings
in the country.
There are two types of title insurance: Lender's title insurance, also called a Loan
Policy, and Owner's title insurance. When issuing a loan most lenders require a Loan
Policy based on the dollar amount of the loan. It protects the lender's interests
in the property should a problem with the title arise. The first step in the process
involves a search of the public records to determine who owns the property, and what
interests may already exist in that property. A title search entails examining the
records in the offices of recorders or registers of deeds, clerks of courts and other
municipal and county officials, or similar records housed in a title company's "title
plant." These records cover all recorded documents, judgments, liens, taxes, street
easements, sewer assessments, special taxes and levies, and other matters.
This extensive review provides advance warning so that any problems with the title
can be resolved before closing whenever possible. Often, court action or legal steps
must be taken to resolve problems. A recent industry survey revealed that corrective
actions had to be taken in one out of every four real estate transactions. Because
of the research and corrective work that title professionals perform, buyers are typically
unaware of the problems resolved without delaying the closing process. The emphasis
on risk prevention greatly reduces the number of claims associated with title insurance
compared to other types of insurance.
Despite the exhaustive title search, hidden hazards can emerge after closing. Things
such as mistakes in the public record, previously undisclosed heir's claiming to own
the property, or forged deeds could cloud the title. This is where owner's title insurance
Owner's title insurance is usually issued in the amount of the real estate purchase.
It is purchased for a one-time fee at closing and lasts as long as the owner or their
heirs have an interest in the property. Owner's title insurance protects the buyer
by paying claims and legal fees in defending the title if a problem is found that
was not uncovered during the title search.
History of Title Insurance
Title insurance has protected the American dream of homeownership for more than 125
years. The first title insurance company was founded in 1876 by a group of Philadelphia
conveyancers. Until that time, conveyancers were responsible for personally searching
title records to determine ownership of the land and encumbrances on the title, but
there were limits on the protection that the conveyancer could provide. This led to
an historic court decision in 1868 encouraging the creation of title insurance.
The continuing expansion of the industry became much more pronounced following World
War II as returning servicemen began to buy homes in large numbers. The title insurance
industry then shifted from a local enterprise to a national business. Yet despite
the national lending/investment environment, and the advent of the secondary mortgage
market, title work has been, and continues to be, based on state laws and local customs.
Virtually every state has statutes and regulations governing the business of title
insurance, with deference given to these enactments since states have legitimate interests
in protecting their citizens on a local level. Because of the importance and specialized
nature of title insurance, as well as a desire to preserve title insurers' safety
and soundness, a number of states have longstanding "monoline" statutes. This means
that only licensed title insurers can sell title insurance and insurers licensed in
any other line of insurance cannot sell title insurance. This ensures that companies
issuing certain kinds of insurance have the necessary reserves to cover the assumed
risk. In addition, many State Departments of Insurance regulate the rates, forms,
practices and other activities associated with our business.
Title Insurance Today
Today, the role of title companies has evolved as they offer a broader scope of services
and continue to provide security to real estate investors. As rapid and dramatic developments
drive the real estate market, real estate investors in this country continue to receive
title protection at a level of excellence unequalled anywhere in the world. Real estate
is the nation's largest asset, and title insurance ensures the quick and secure transfer
of land, giving mortgage lenders, homebuyers and investors a sense of confidence in