What is a Title Examination?
A title examination is a careful examination of the public records in the Parish where the property is located to confirm who owns the property and whether there are any encumbrances on the property. Encumbrances include judgments, mortgages, unpaid property taxes or liens affecting the property that will need to be paid prior to or at closing. This is important because you want to make sure the person selling the property to you has the legal right to do so. A title examination will also show if anyone can claim a right to use your property, such as a utility easement or restriction.
What is Title Insurance?
Title insurance is insurance against loss or damage resulting from defects in the title to a particular parcel of real property. Title consists of the legal rights a person has to the ownership and possession of land. Title insurance provides coverage for damages and legal fees in the event someone makes a claim against you affecting your ownership in real estate. For example, title insurance covers claims resulting from forgeries in public records, filing errors by the Clerk of Court, documents signed under duress, and numerous other “hidden defects” which wouldn’t be detected by the closing attorney’s title examination.
Why Do I Need Title Insurance?
A home is usually one of the single largest investments you will ever make. You will have to purchase several types of insurance to protect your home and personal property. For example, homeowner’s insurance protects against loss from fire or theft and flood insurance protects against rising water. Title insurance protects against hidden title defects that may jeopardize the financial interest in your home.
Title insurance is just as important as the other insurances you will purchase. When you purchase a home, you are actually purchasing the title to the property. That is, the right to occupy and use the property. The title you are purchasing may be limited by rights and claims asserted by others, which may limit your rights to use and enjoy the property and result in financial loss. Title insurance protects you against these types of title hazards.
While homeowner’s insurance and flood insurance protect your home against possible future events and require you to pay an annual premium, title insurance protects against loss from defects that already exist in the title. Title insurance is purchased for a one-time premium.
What is Lender’s Title Insurance?
Your lender usually requires you to purchase a Lender’s Title Policy which protects the lender up to the amount of the mortgage, against loss or damage resulting from defects in the title to your property. However, a Lender’s Title Policy only covers the lender’s loss. It doesn’t protect your equity in the property. For that you need an Owner’s Title Policy for the full value of your home.
What is Owner’s Title Insurance?
Owner’s title insurance, also called an Owner’s Title Policy, fully protects the buyer should a covered title problem arise after they have purchased the property. Owner’s Title Insurance is a one-time-only expense, paid when you purchase your home, yet it continues to provide coverage as long as you or your heirs have an interest in the property. This protection may apply even after you have sold the property.
What can make a title defective?
In spite of all the meticulous preparation and dedication that go into a title search and examination, hidden defects can emerge after closing, resulting in unpleasant and costly surprises. Possible hidden title problems can include:
- Errors or omissions in deeds, wills or trusts
- Incorrect Notary acknowledgements
- Undisclosed heirs
- Incorrect representation of marital status
- Mistakes in recording legal descriptions
- Mistaken interpretation of wills and trusts
- Documents executed under false, revoked or expired powers of attorney
- Gaps in the chain of title
- Mistakes and omissions resulting in improper abstracting
- Deeds by minors
- Inadequate legal descriptions
These hidden “defects” are dangerous because you may not learn of them for many months or even years. However, they could force you to spend a substantial sum on a legal defense that could still result in the loss of your property. Title insurance offers financial protection against these and other covered title defects. If you purchase an owner’s title policy, it will protect you against these hidden defects and could save you a substantial amount of money in the long run, all for a one-time fee at closing.
How much does Title Insurance cost?
Title insurance rates are closely regulated by the State of Louisiana and are determined by a number of factors including the purchase price, your loan amount, and the dates of issue. A Lender’s Title Policy is issued in the amount of the mortgage based on the State regulated rates. If purchased at closing, an Owner’s Title Policy is usually issued for an amount equal to the value of your home. The premium is also regulated by the State. However, if you buy an Owner’s Title Policy as an add-on to the Lender’s Title Policy, the cost is relatively small. Typically, the cost of title insurance is less than your annual auto insurance.