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How Does Title Insurance Work?

When you purchase your family home, a vacation home, or real estate, the “title” you receive to the property proves that you hold the right of ownership and legal possession. Any type of “defect” in the title could be any legal right held by someone other than you (as the owner) to claim your property or make demands on you as the property owner.

“Title defects can, and do, occur in many ways, such as:

  • Using fraud, someone has impersonated the property’s actual owner(s).
  • Vital documents not executed by all legally necessary parties such as a spouse, co-owner, or heir.
  • The deed was improper, or documents such as wills or mortgage discharges were forged.
  • Vital records were executed by someone who lacked the competency or was not of legal age.
  • Some documents were executed using unrecorded, invalid, or expired Powers of Attorney.
  • Some papers are not correctly recorded, and the list goes on.

“Title Insurance” provides insurance protection to you (as the owner) and possibly the lender against defects in the title of the real estate you acquired. As the owner, your title insurance policy guarantees you against loss due to defects in the title pursuant to the policy’s specific terms.

So, if a problem unduly affects your interest or right to hold the property, your policy provides legal recourse to protect your investment fully. This title insurance policy will remain in effect for as long as you own an interest in the property or have obligations under a conveyed warranty.

However, just because you have title insurance doesn’t mean that if a problem arises, you won’t have stress, monetary damages, etc.  By obtaining the professional services of a Moorestown or Browns Mills real estate lawyer, you can feel confident that a thorough title search is done correctly and get ahead of any issue before you close.

Also, If a defect on the title does come up, only a qualified real estate lawyer can advise you.

Real estate investing is always an expensive and critical purchase for you and your family. Therefore, It’s always in your best interest to have a professional real estate lawyer working on your behalf.

Why is “Title Insurance” Different Than Most Types of Insurance?

You usually might perceive insurance in terms of the payment of future loss due to some future adverse event. For example, you obtain automobile insurance to pay for future losses such as a car accident or possibly the theft of your car itself.

Title insurance, however, is unique. It provides coverage for future claims or losses due to title defects that happened in the past, usually before you acquired the property. These types of adverse events and risks are much less evident than those involved with auto insurance, etc., but they can be just as devastating to you and your family.

This is another critical reason to obtain the guidance and advice of a professional, thorough, and experienced real estate law firm. In the vast number of transactions, your lawyer, through their extensive “title search,” will uncover any defects before you take possession of the property. These “title defects” can be corrected, or your lawyer may suggest you “walk” away from the deal altogether. So, you still may need title insurance (especially if you financed the property), but your risk will be minimized significantly.

Is Title Insurance Absolutely Necessary?

Whether you’re a first-time home buyer or a seasoned real estate investor, you learn that any real estate transaction is a complex series of steps that, finally and hopefully, will result in you “closing” on the property and taking final possession.

When you finally successfully get through these steps, then at the closing, you receive “title” to the property. “Title” is your absolute right to possess and use the real estate you purchased. However, there are many different forms that “title” can take: individual ownership, tenants in common, joint tenants, life tenants, etc.

Also, there can be different specific uses for the property, and the rights for those uses can be given or sold, or prior title transfers could restrict them.

It’s also not uncommon that a mortgage lender has an interest in the real estate or anyone who performed work on the property if they filed a “mechanics” lien against it.

The IRS may have a lien for unpaid taxes, or the municipality or a utility company could have an easement giving it the right to string utility lines across the property.

So, it gets incredibly complicated, and if any (or more) of these items mentioned above exist, you certainly want to know about it before you close, and these “complications” become yours!

Therefore, advice, guidance, and attention to detail become invaluable to protecting your investment.

What Is a “Title Search” and Why Is It Important?

Before you can purchase or take title to real estate, it’s always in your best interest (and usually required) to have a comprehensive search of the past title records of the property done.

This will commonly tell you the type of title the current owner holds, and if they can sell or transfer to you, and ensure that the title is “clear” of defects or encumbrances.

It’s possible, but certainly not advisable, to search the title records yourself. However, by doing so, you are entering a potential real estate “minefield.”

Also, if any finance companies are involved, they demand a proper, professional, and thorough title search. Doing an accurate, comprehensive title search is far harder than it may seem, and your real estate lawyer will diligently work to uncover any defects that might harm your investment.

This is standard practice before closing, and your experienced real estate law team will know exactly what to look for and do what’s necessary to protect your interests. A professional, thorough title search will reveal any limitations on the use of the property and rights others may have to it, including liens, monetary obligations, etc., that will become your legal obligation upon closing.

I Need To Know More About Title Insurance; How Should I Proceed?

New Jersey real estate laws may not require Title Insurance, but it is cost-effective, and a very sound means of protecting your real estate investment, no matter what form it may take.

There are numerous critical and wise reasons to obtain it. Consultation with a Moorestown or Browns Mills real estate lawyer is mandatory if you have any questions about your transaction concerning title insurance or other pertinent real estate matters. They will provide you with a case evaluation and always guide you down the best path possible to protect your interests and those of your family.