April 24, 2017
Imagine you’ve just closed on your new home.
It’s everything you’ve ever dreamed of because the builder built precisely to your specifications. You paid cash because the mortgage-free lifestyle suited you best. You waived the “optional extra expenses” because you had that option. Your agent mentioned Title Insurance, but it didn’t seem necessary, after all, you are the first and only owner of this house constructed just for you. The builder has an impeccable reputation and their references were the best. What could go wrong?
Murphy’s Law has a way of pointing out the answer to that question when least expected.
“It isn’t that you don’t own the house exactly,” you hear your real estate agent say, “It’s just that there is a cloud on the title that will need to be cleared up. Since you didn’t purchase Title Insurance, you will have to retain an attorney to be sure the Title is properly registered.”
Title Insurance. What is it and why is it important when you purchase a home, new or resale?
Discuss it with your average real estate consumer and they may be able to tell you that it protects the title of the property, but most may not know much beyond that.
While fairly uncommon to encounter, any number of occurrences may cause a property title to be improperly conveyed, causing what the industry calls “a cloud” on the Title. Paperwork not signed in the right place, the wrong paper filed, or in the case of a new home builder, paperwork improperly filed could leave open the possibility of questionable ownership later when you go to sell the property.
The seller of a property most often pays for title insurance at a closing, but a buyer can also purchase the insurance to cover themselves or a mortgage company may request it. Although a title search, done prior to the closing, is most often where any defects are found and corrected, there are those rare times when something slips by unnoticed.
- Purchased to protect the integrity of the title as it changes hands, Title Insurance is a guarantee that if a defect of any kind is found in a title, the Title Company will legally defend the rights of the Seller and Buyer involved.
The main function of a title search is to ensure proper procedures were followed for the legal chain of title transfers on a property. The main issue is so no one else can make an ownership claim on the property.
A few areas where a defect, referred to as a cloud, might be found on a title could arise from:
- Mineral rights of a property having been deeded separately at some point in the chain of title
- Water rights that are deeded separately from land title
- Inheritance that split ownership at one point but later sale only had one signature
The more common defects include:
- A mortgage that was paid but not properly charged off
- Misspellings of names on a previous title transfer
- Incorrect or even misspelt legal description of the property
- Unpaid property taxes or other legal liens against the property that haven’t been cleared
- Any legal proceeding involving the property that hasn’t been fully settled
- An inheritance that doesn’t clearly grant the right to sell or transfer the property to another or that legally prohibits the same
- Any gaps in the chain of title; going back sometimes hundreds of years. This would require either the defect is cleared up or Title Insurance is issued with an “exception” to that particular defect
Title Insurance is one of those items that is paid little attention to outside of the cost on a closing statement, but that actually plays an important role in every real estate transaction. A clear understanding of how Title Insurance works to secure your rights as a property owner eliminates worry during your home sale or purchase experience. To ensure all legal steps are carefully adhered to during your real estate transaction, hire a local, professional real estate agent to represent you in the sale or purchase of your New Jersey home.