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What is a title? What is a title insurance policy?

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The title of a property is evidence the owner is in lawful possession of that property. It is a legal document filed in the county of the property.

Title insurance protects against loss from encumbrances in the title of a property.  Generally, called a “defect”. A defect is an all-encompassing term used to say there is something wrong with the title. A defect may interfere with the transfer and issuance of title insurance. A defect can be a claim of ownership, fraud, forgery, lien, encroachment, or easement. It is any document recorded establishing a claim. The title policy ensures a new owner against all claims made before the new ownership. A lender’s policy ensures the lender’s security interest.

 When someone says there is a “cloud on the title” they mean a defect exists that can prevent transfer to a new owner. For example, a seller is in a contract and they are contesting the release of earnest money. Title insurance is not issued to another buyer until that contract terminates.

 
Here is an example of a claim. You purchased your dream home, moved in, and make your mortgage payments. You get a notice from a company saying they have a lien on your house that is in default and demand you pay it. This is ridiculous and how could this be?  If a valid lien, it’s a claim on the property until paid. You don’t ignore it. You make a claim on your title insurance from when you purchased your home. If ignored, you might get a notice of foreclosure on your property. You might lose your dream home if not resolved.
 
Notify the title company to investigate the matter. If a valid lien, they will get a release at their cost. At the time of purchase, a job of the title company is to search for liens and defects making sure they get cleared. Any not found, the title policy protects you against any loses. All buyers should get a binding legal title clear of unknown defects at closing.  If for some reason they don’t, that is why title companies and title insurance exist.

Notice: This website contains general information about legal and financial matters. The information is not advice, and should not be treated as such. You must not rely on the information on this website as an alternative to legal or financial advice from your attorney, accountant or other professional services provider. If you have any specific questions about any legal and financial matter you should consult your attorney, accountant or other professional services provider.