Understanding the Role and Value of Title Insurance in Real Estate Transactions

 |   |  « Back

What is Title Insurance?

Title insurance is a one-premium agreement to indemnify a policy-holder against loss by both on-record and off-record defects found in the title or interest to real property and from the invalidity or unenforceability of mortgage liens. It is meant to protect an owner's or lender's financial interest in real property against loss due to title defects, liens or other matters. It will defend against a lawsuit attacking the title as it is insured, or reimburse the insured for the actual monetary loss incurred, up to the dollar amount of insurance provided by the policy.

Typically the real property interests insured are fee simple ownership or a mortgage. However, title insurance can be purchased to insure any interest in real property, such as an easement or a lease. Just as lenders require fire insurance and other types of insurance coverage to protect their investment, nearly all lenders also require title insurance to protect their interest in their real estate collateral.

Why does Title Insurance Exist?

Title insurance exists in great part because of deficiencies in the land records laws. Pennsylvania, like most states, has opted for a system of document recording in which no governmental official makes any determination of who owns the title or whether the instruments transferring it are valid.

In the recording system, each time a land title transaction takes place, the transfer instrument is recorded with a local government recorder located in the county where the land lies. The instrument is then indexed by the names of the grantor and the grantee and reproduced so it can be found and examined by anyone who wants to see it. Under this system, determining who owns the title requires the examination of the indexes in the recorders' offices prior to settlement and issuance of a policy.

Title insurers utilize this recording system to produce an insurance policy for any purchaser of land, or interest in it, or mortgage lender if the premium is paid. Title insurers use their employees or agents to perform the necessary searches of the recorders' offices records and to make the determinations of who owns the title and to what interests it is subject. The policies are fairly uniform and the insurers carry the financial reserves required by insurance regulation to compensate their insureds for valid claims they make under the policies. The policies also require the insurers to pay for the costs of defense of their insureds in legal contests over what they have insured.

Comparison with other insurance

Title insurance differs in several respects from other types of insurance. First, it is not based on the prediction of a future event, where most insurance is a contract where the insurer indemnifies or guarantees another party against a possible specific type of loss (such as an accident or death) at a future date, title insurance generally insures against losses caused by title problems that have their source in past events. This often results in the curing of title defects or the elimination of adverse interests from the title before a transaction takes place.

Second, a title insurance policy is paid for all at once with only one premium and the coverage lasts for as long as the insured has some liability for a title defect.

To learn more about title insurance, please feel free to contact Reager & Adler, PC’s Real Estate Group.

  • Facebook
  • Twitter
  • DZone It!
  • Digg It!
  • StumbleUpon
  • Technorati
  • Del.icio.us
  • NewsVine
  • Reddit
  • Blinklist
  • Add diigo bookmark
Harrisburg Magazine Readers' Choice 2011