A lot of times, people think that buying a property and getting a deed to a piece of land is the end of the discussion. The land is yours because you bought it. In one sense, yes, this is true. However, this does not actually mean that you are the true owner. When you buy a home, typically a Title Agency will do a title search to make sure your property is clear of any title defects during a prescribed period of time. (Residential Searches usually go back 42 years, Commerical Searches can go back 60 years.) Title searches are only required to go back to a certain point due to the extreme cost that would be incurred if every single deed, easement, and lease all the way back to the original owner of the property had to be reviewed. (Think thousands and even tens of thousands of dollars.) Okay, you ask, if there hasn’t been an issue in 42 years and the title was just searched, why do I need to worry about it? Although this is a valid point, all of the valid liens, mortgages, deeds, easements, and agreements should pop up in a title search, however, there are instances when these issues can get missed:
Human error: The Abstractor (person who does the title search) could have missed something. Or the county/government office charged with recording and keeping track of the document could have made a mistake that would not be discoverable.
Unknowable Interests: What if the issue falls just outside of the acceptable window of review: For example, a 42-year search could show that a property is clear of any adverse interest. However, maybe 48 years ago someone reserved an interest or did not release an interest, and now an heir to their estate could come trying to claim your land.
Intentional Fraud: There could have been a sale that ends up being contested and invalidates your interest in the property because the person you bought it from does not have a clear title, or maybe the person they bought from was not able to transfer title.
Now let’s walk back off of that cliff. You probably forgot we were talking about title insurance. So what is it? Well, it is the insurance that defends your right to your property or at least compensates you if, for some reason, you would need to leave it. There are two types of policies. A Loan or Lender Policy – this is a policy that the lenders (ALWAYS) require you to purchase to protect the mortgage on your property. Essentially this protects the loan and goes to the bank only, and lasts only for the duration of the mortgage. The second type of policy (this is for you) is called an Owner’s Policy, and this is the policy that protects you. It pays legal costs to defend your property, compensates you if you lose the property, and ensures when/if you sell the property, nothing comes back on you.