Before you go into a closing, it is critical to know that your title to the property will be free and clear. This means that, after the closing, it will be free of prior indebtedness or other defects or encumbrances. It is then what is called a “marketable title.”
Normally, at the closing the Seller gives the Buyer a deed, which transfers the title to you and warrants your title against claims of other persons. The warranties on the deed are only representations of the Seller. With a thorough examination of title and a title policy you are insured that the property you purchased belongs to you.
A title examination involves researching the public records to disclose the previous owners of record, prior deeds, mortgages, court judgment, probate proceedings and divorces, foreclosures, tax and construction liens, and other matters that could affect title. In other words, the legal history of the property. In some cases, a title examination will uncover title defects that could jeopardize a Buyer’s ability to take clear title to the property.
Should research reveal title defects, the Seller may be asked to undertake legal proceedings to clear the defects. By obtaining a title insurance policy, the title underwriter and title agent must see that these defects are cleared.
There are also hidden defects, which may not surface even in the course of a thorough title examination. One of these could put your ownership of the property in question, even after you’ve closed.
Some examples of defects, both obvious and hidden are the following:
- Lost or forged deeds
- A married signer who represents himself or herself as single
- Claims of undisclosed heirs
- Impersonation of another
- Clerical errors made at the courthouse when earlier documents were recorded
- Incorrect legal descriptions
- Instruments signed by minors
- Instruments signed by mentally incompetent persons
- Title taken as a result of an improperly probated will
- Confusion of title resulting from similar names
The point of title insurance is to secure your claim to property and protect you against a hidden defect. If you are forced to defend your title in court, the insurer agrees to pay the costs.
You pay a one-time premium for title insurance, and the protection continues in effect forever, even after you sell your home.