Before I became a real estate lawyer, my husband and I purchased our first home. The day before the closing we were contacted by a paralegal from our lawyer’s office. She called to inform us of how much money we had to bring to the closing the following day and to ask us if we were interested in purchasing an Owner’s Title Insurance Policy.

We had no idea what Owner’s Title Insurance was (they don’t teach that in law school). I can’t recall what her definition of title insurance was, but apparently it was not convincing enough to make us want to purchase it. What we did know about Owner’s Title Insurance was that it was optional and if we opted to get it we would have to bring additional money to the closing. Those of you who have purchased a home with limited funds can appreciate the reality that $50 is too much when you have already tapped into all the funds saved for the down payment on your home. Needless to say, both my husband and I agreed that we had no need for an Owner’s Title Insurance Policy.

The following day at the closing table, our lawyer once again offered us an Owner’s Title Insurance Policy and once again we declined. However, he began to explain that because unknown problems can be hidden in the history of a property’s title, our lender required us to purchase Mortgagee Title Insurance which protects its interest in the property against any liens or title defects that may not have been discovered by the title searcher before the closing.

He further explained that Owner’s Title Insurance is an insurance policy that guarantees the property is free from problems such as hidden liens and claims, including work performed by any contractors prior to your purchase. Mortgagee Title Insurance covers the lender up to the mortgage amount. However, Owner’s Title Insurance covers the entire value of your property as opposed to just the value of the loan. Owner’s Title Insurance specifically insures that:

* You are the true legal owner of the property
* There are no defects, liens or encumbrances other than those discovered during the title search
* If your title is challenged legally all costs and expenses to defend you will be covered by the title insurance company
* The dollar amount of your coverage will automatically increase 10% each year for the first five years at no additional cost to you.

Before a title insurance policy can be issued, there must be a careful examination of the title to the property by a qualified title searcher or sometimes an attorney. Even after carefully searching the title, sometimes some risks still remain. Examples of these risks, which are covered by an Owner’s Title Insurance Policy include:

* Lost or forged deeds
* Undisclosed heirs
* Deeds executed by incompetents
* Unfiled Mechanics’ Liens
* Incorrectly indexed deeds
* Deeds by minors

We learned that Owner’s Title Insurance protects us from these risks while we own the property and for as long as we might be liable to any future owner. However, our Owner’s Title Insurance Policy is not transferable to any future owners, they must purchase their own title insurance policy.

Finally, imagine this, one year after closing on your home, you are all moved in. Things are going well and you have settled in nicely. One day you get a call from your mortgage broker informing you that interest rates have dropped since you purchased your home and you could lower your monthly mortgage payments if you refinance. You agree that you would benefit from refinancing and go through all of the steps to do so.

Then a few days before the closing you are contacted by your lawyer’s office and told that there is a Mechanics’ Lien on your property for a fairly large amount. (You know that new roof that made your house look even more appealing to you? Well, it wasn’t paid for.) The contractor your sellers hired to replace the roof was not paid in full, so he placed a Mechanics’ Lien on the property. Since the town clerk’s office indexed the paperwork incorrectly, the lien was not discovered by the title searcher before your closing. You find yourself in the position of having to defend your claim as clear holder of the title to your house and land.

Unfortunately, at the time of the closing you purchased a Mortgagee Title Insurance Policy to protect the lender, but decided that the one-time up-front payment for an Owner’s Title Insurance Policy to protect your interest in the property was just too much and you declined to purchase it. At this point your only choice may be to pay the amount of the lien to secure your interest in title, and attempt to be reimbursed by the sellers.

If you had just paid the additional money at the closing (title policy premiums are determined by the purchase price of the property ) you would be covered against the legal and financial consequences resulting from a claim like that in the scenario above, as well as other claims that jeopardize your ownership of the property.

After thoroughly questioning our lawyer about Owner’s Title Insurance and learning that an Owner’s Title Insurance Policy provides us protection against financial loss that could result from defects in the title to our home or errors made in searching the title, we decided to spend the extra $50 at the closing. The knowledge that we are secure in ownership of our home was well worth the expense.

Before purchasing your home, I recommend that you learn more about title insurance to decide whether or not to purchase owner’s coverage. If you have not already done so, you should consult an attorney of your choice to help make the decision.

Tinisha M. St. Brice is an attorney and the owner of Tinisha M. St. Brice & Associates in West Hartford, CT. She can be reached at 860-523-4560 or by email at tms@stbricelaw.com

Copyright ©2007 First-Time HomeBuyer Magazine

The most important question a homebuyer should ask in a real estate transaction is whether title to the property is “good.” The bank lending the buyer the money will most certainly be asking this question. A title search of the property provides an answer for both parties. Without this information the entire transaction could be doomed.

A title search will give the history of a property for a specific period of time. Just like you can order a vehicle history report from CarFax, you can order a property history report with a title search. A clean report from CarFax enables a buyer to purchase a used car with peace of mind. Similarly, a title search facilitates a smooth and effective transfer of ownership of a property. A title search identifies the owner of the property and reveals any liens or other interests encumbering ownership.

Once the contract between the buyer and seller has been signed and the financing lined up, the attorney representing the buyer will order the title search. The attorney may perform the search personally or order a search through a title insurance company. The title insurance company then assigns the order to one of its in-house searchers or to an independent title searcher. The search itself is an investigation of the land records in the town where the property is located. In certain instances a title searcher will need to check the probate or courthouse records for a particular search.

The title searcher traces the history of the land by examining the deed transfers from one former owner to another or by examining the probate documents in cases where someone died owning the land. Just like there are no two snowflakes exactly alike, no two title searches are the same. A thorough and complete title search for one property may take a few hours, whereas the same effort may take two days for another property. The size and shape of the land often changes through the passage of time, and many times the deeds and probate proceedings involved in real estate transactions are flawed.

Deeds, especially older deeds, often describe land so ambiguously that it is difficult to ascertain whether it is the property you are supposed to be searching. Older deeds commonly use physical monuments or former landowners to lay out the boundaries of a property. For example, an older deed may describe the property this way: “North by the road, east by land of Stevenson, south by a stone wall, and west by land of Johnson.” Many years later the road and neighboring landowner may have changed names and the stone wall fallen down. Most of the searches encountered today involve subdivided lots that came from much bigger tracts of land. A title searcher must be able to read and use survey maps to overcome these obstacles.

The title searcher is a hunter and gatherer. What is found during the title search must be reported to the attorney responsible for examining the title. The examining attorney will review the title search to draw a legal conclusion and form an opinion concerning the status of title. The attorney will note any mortgages or liens that need to be paid before title is transferred. The attorney will also look for any issues affecting title, to be sure they are cleared up before a client takes title to the property. It is extremely important that the title searcher recognize and report not only the usual findings but also any unusual things that the attorney will need when examining the title. The title searcher may not know if something affects the property being searched, and therefore it is in the property buyer’s best interest for the searcher to err on the side of caution and report everything. I liken the job of a title searcher to that of Fox News; “We report, and you decide.” The “you” is the examining attorney.

The purchase of a home is the biggest monetary investment most people will ever make. It is an especially important milestone for those whose purchase represents their first time owning a home. A title search uncovers any restrictions that may hinder your use and enjoyment of your property and ensures that the buyers are taking title to the property “free and clear of all encumbrances.” At least that’s the theory. It is meant you will be buying a property with no open mortgages or liens from a prior owner. Some encumbrances are necessary and will always remain on the title to your property. Common examples are utility, water, and sewer company easements.

Liens, encumbrances and restrictions highlight the need for a title search with each successive transfer of a property. The title search gives the buyers an accurate physical description of what they will be purchasing as well as any conditions or restrictions that come with the property. The importance of the search cannot be understated. A mechanic’s lien or unpaid taxes are examples of problems that can arise after the closing as a result of a defective title search. Problems like these can often be resolved by the parties involved; however, some issues, such as boundary disputes and appurtenant easements can take years and lots of money to resolve. What may seem minor to one property owner can be a major headache to another.

A title problem can affect your ability to obtain financing and transfer ownership. Banks will require the homeowner to have a lender’s insurance policy. A lender’s policy protects only the bank. The homebuyers have the option of purchasing an owner’s policy, which protects their interest in the property, but even with title insurance, a title issue can drag on and test the patience of even the calmest property owner.

Finding a problem or potential problem with a piece of property and remedying it before ownership changes hands is always the best solution. The process of buying a home can be a wonderful and maddening process at the same time. Being able to say that your home is truly your castle and not someone else’s is priceless. That is why a title search is an extremely important foundation of any real estate transaction.

John Harlow is the owner of New England Abstract a real estate title searching company located in Wallingford, Connecticut. He can be reached at 203-269-9600 or by E-Mail at jharlow@newenglandabstract.com.