By Edward B. Woodall

Unless you’ve bought real estate before, you’ve probably never thought about title insurance. But, as any experienced lender, broker, or real estate attorney will tell you, title insurance is absolutely crucial to the transaction, and you shouldn’t close without it. In this article, we’ll explore what title insurance does, how the process of getting it works, and why you should never go without it.

• What Does “Title” Mean?

Whenever the owner of property buys, sells, mortgages, or encumbers (i.e., makes a binding promise to do or not do something with it) all or a portion of the property, a record of that event is usually made in the local register of deeds’ office. Taken together, all these records make up the chain of title for the property. When you buy the property, you buy it subject to anything in the chain of title.

• How is Title Insurance Involved?

Unlike car insurance or health insurance, title insurance is backward looking. It looks backward at the chain of title, assesses risks, and, for a one-time payment, insures you against those risks. Here’s how it works.

First, the title company has a title search done. That means an attorney researches the chain of title and prepares a title report showing who owns the property and what, if any, encumbrances or other problems there are. Sometimes, this process identifies problems that can be remedied, like a recent document that’s missing a necessary signature. It should also reveal problems that cannot be remedied, like a defective deed several decades back in the chain of title, as well as encumbrances you might want to keep on the property, like a cross-parking easement between two neighboring restaurants.

But there are some problems that might not be discovered by a diligent title search. These include:

• Mistakes in the interpretation of wills or other legal documents;
• Forged deeds or mortgage releases;
• Undisclosed or missing heirs;
• Deeds or mortgages by those mentally incompetent, of minor age, or supposedly single but actually married;
• Birth or adoption of children after the date of a will;
• Mistakes in the public records;
• Confusion from similarity of names; and
• Transfer of title through a foreclosure sale where the requirements of the foreclosure statute have not been strictly met.

Many times, these issues might never come to light, or might only arise years after you’ve purchased the property. That’s where title insurance comes in. The title insurance company will review the title report produced after the title search and issue a title insurance commitment, which will include a list of what they’re willing to cover if certain conditions are met, like payment and release of an old mortgage or getting a new survey, and a list of what’s not covered, called the “exceptions.”

What the title insurance company is insuring is your ownership of the property, subject to the exceptions. If an issue with the title to the property arises after closing that dispossesses you of a portion of the property or prevents you from using the property, title insurance should help make you whole.

• How Can the Venn Law Group Help?

When you buy title insurance, you’re buying peace of mind that undisclosed and undiscovered problems in title won’t leave you holding the bag: out the purchase price and no longer the owner of the property you thought you purchased. But it’s not as simple as it may appear at first glance. The title insurance company has an interest in including as much as possible in the list of exceptions. That’s where competent, experienced counsel can make a difference. A good lawyer will review the title report and the title commitment and be prepared to explain to the title company what should and shouldn’t be included on the list of exceptions.

An experienced attorney on your side can also negotiate extra coverage for you, called “endorsements.” There are more kinds of endorsements than this blog post can cover, but common endorsements include insuring access to public roads from the property and insuring that the property has the necessary utilities for what you want to do. Finally, your attorney should make sure that all the title company’s requirements for issuing the tile insurance policy are applicable and help you understand what you need to do to satisfy them.

To learn more about Venn Law Group’s Commercial Real Estate practice group and to see what they can do for you, click here.

Edward B. Woodall is an attorney at Venn Law Group who works incorporate law and commercial real estate, including leasing, financing, taxation, business structures, and dispute resolution. He is passionate about helping business owners solve a variety of complex legal problems and has performed more than 100 hours of pro bono work. In addition to his law degree, he also has a background in history and Spanish.