What is the difference between a title search and title insurance?

Answer 1

The more appropriate term is title examination.

A title examination is a comprehensive examination of the public land records to determine the ownership of a property, whether there are any outstanding liens or encumbrances on the property, whether any other entity has rights in the property, and to discover whether there are any issues or defects that need to be resolved prior to the purchase of a property. In order for a person to sell their property they must be able to transfer "marketable title" to a property. Marketable title is free from encumbrances that would cause a reasonable purchaser to not purchase the property. When you purchase a home, a title company or attorney's office will hire a professional to examine the record title to the property to determine whether any issues need to be resolved prior to transferring title. For example, in Massachusetts title examiners are required to research back in the public records for a period of 50 years to look for liens, easements, and problems with the title. Other states have similar requirements.

But what if something that was not apparent in a title examination at the time of the purchase surfaces after someone purchases a property? These latent defects in title cost people time, money and potentially the right to use and occupy their home. Title insurance insures exactly this situation.

There are two types of title insurance. First, there is lender's title insurance. Lender's title insurance protects the lender's right to title (i.e. a mortgagor's right to first lien position on the property) and is required for most mortgages and loans encumbering real property. As it is protecting a loan the premium amount is based upon the amount of the loan. This type of insurance only protects the lender's interest in the property NOT the homeowner's. If there is a defect in title that is uncovered after a homeowner purchases a home, the lender's policy will not protect their interests.

The second type of title insurance is Owner's Title Insurance. This is a policy of title insurance that protects the homeowner's interest in the property. The premium amount is based upon the purchase price of the home. It is a one time fee that protects the homeowner for as long as they own the property. If a problem arises, the title insurance company will pay to defend your right to title or to fix the problem. If the problem cannot be fixed, the title insurance company will pay any monetary losses incurred by the homeowner.

Common title problems are: mistakes in registry records or improperly indexed documents, errors on deeds commonly in the parties or descriptions, improperly or un-discharged mortgages, and undisclosed heirs. These problems are real and do occur fairly often.

As with any type of insurance there are exceptions to coverage. You should check with a title insurance agent before purchasing a policy and, as always, if you are purchasing real estate you should consult with a real estate attorney prior to putting in an offer.