What Is Title Insurance Anyway?

When buying a home , there are several types of insurance policies you'll be likely required to purchase . One of these is title insurance and , to be honest with you , nobody understands what it is or what it does . Title insurance is designed to protect you and your lender from any claims , any legal claims, or ownership disputes regarding the property .

It differs in some respects from other types of insurance . While most other forms of insurance protect against future loss , title insurance instead relates to the past . It protects against undisclosed defects in title that exist at the time the policy is issued .

Thus , rather than requiring a periodic payment of ongoing premiums to continue future coverage , title insurance requires a one-time payment compensating for the risk assumed and the services rendered in connection with researching and preparing the policy . I went on Reddit got some real-life examples because I think that think i is little difficult to understand .

So let's see 1Deed forgeries , which include good , old-fashioned theft . This is when someone pretends to be an owner of the property and perhaps deeds it to themselves and is in cahoots with a notary public to get that done . Mistakes in deed language like bad descriptions , because deeds , honestly , are written by human beings .

and I just recently had to make some corrections to a deed written by someone else because human beings make errors e . I found another really interesting description or example of when title insurance has come into play .

This looks like it's from a real estate agent or maybe a title insurance provider , I'm not sure , but anyway anyway, says one "one my first transactions had a garage that was over the lot line . The original builder owned multiple lots and just built his house where he wanted and no one cared .

50 years later , when he was pushing up daisies and his kids were selling his house , it turns out he had sold the lot next door 20 years prior to a friend who had turned around and then sold it to someone else . And only now does someone notice that five feet of the garage is on the neighbors neighbor's . You know who fixes the problem Title companies .

It's really aptly put . There are two types of insurance policies . We've got the owners policies and the lenders policies , and owners policy is designed to protect the homeowner , while lenders policy protects , course , the lender in case there are any legal issues with the property .

Of course , when purchasing title insurance , working with a reputable title company is important . They will conduct a search of the property's title history to identify any potential issues and , if any issues are found , the title company will work to resolve them before issuing the insurance policy .

Now , one thing to pay attention to if you're one of my clients , or if you have a living or revocable trust , when you transfer your home to your revocable trust and , by the way , if you transfer your home as a result of any other transaction , including divorce or , obviously , a sale , you'll need to contact your title insurer .

This is because your policy which , let's be honest , you may not have seen since you purchased the house in 1983 , your policy is going to specifically list the insured party in the document . The insured party is most likely the owner as an individual or a couple as individuals .

It is mostly like , excuse me , most likely not going to list your trust or yourself as a trustee , and I am aware on at least one occasion when an insurance provider rejected a claim on the grounds of a strict construction of the term insured . Now , if you are one of my clients , you'll know that this I find quite upsetting .

And that is because for a revocable trust , legally there's really no difference between the person as an individual wearing their individual human hat or when they wear their trustee hat . There is no difference . However , in this case , which I can see being used by an insurance carrier , they wanted to decline a claim .

This case is called Kauak v Transnation Title Insurance Company . The homeowners owned their house in an LLC . The LLC was the only insured party in the policy and the homeowners were also the sole members of the LLC , which means essentially these homeowners owned the LLC by themselves . The policy , provided the coverage of this policy , shall continue in force .

I'm just going to read ahead here In favor of an insured only so long as the insured retains an estate or interest in the land , blah , blah , blah . Or only so long as the insurance shall have liability by reason of covenants , warranty , blah , blah , blah . Anyway , you see me referencing the phrase the insured .

That's because the phrase the insured was defined in the live sorry , the title insurance policy as being the LLC . Okay , keeps that in mind . So they've transferred their home to the LLC . But then they turn around and they dissolve it After the LLC was dissolved and obviously if the LLC is dissolved , it's not actually owning the property anymore .

The parties filed a claim with their title insurance . I don't know what the claim was for . The insurance carrier denied the claim on the grounds that the LLC was the only insured party . Ugh , so devastating . Without going into too much nuance here , let's just say tread carefully . It is best , is a best practice , to include your trust as an additional insured .

And in addition , if you make any kind of transaction moving a home into an LLC , call the title insurance provider , moving the home out of the LLC , call the title insurance provider .

You just have to make sure that these transactions are covered and that not the transactions are covered , but that the insurance continues to apply in the event that there is a transaction with regard to the home . Obviously , we've sold the house .

Clearly the new owner is gonna have to get their own title insurance policy , but I think people sometimes overlook the transactions that might result if the LLC example , if there is a divorce and a spouse has taken off title .

If you've got any questions , any questions about title , insurance or the home buying process in general , don't hesitate to contact a real estate professional or a real estate attorney . They can provide you with valuable guidance and advice throughout the process . I know some good ones . You can reach out to me if you need a referral . Thanks for listening today .

To set up a meeting with me , you can contact my office at office at 818-248-2183 , or go to my website at lawyerCMAcom , because , remember , this podcast does not contain legal advice . It only contains general information . I'm not your attorney unless we have a contract saying that I am your lawyer . Take care .