Title insurance, as the name indicates, is insurance to title; to the title of a real estate property, more specifically.
Now to first understand “title insurance” we need to understand the concept of “liens” on real property first.
A lien is essentially a claim a person (natural or juridical) has against a property because of some unpaid debt to that person by the owner of the property. Imagine that you sued somebody for a $1,000 debt to you, you obtain a judgment, and then after that judgment, the defendant does not pay you your $1,000. What do you do? Your lawyer will record the judgment in county records. If the defendant owns real estate in that county, that $1,000 judgment will attach his real estate and will follow it for at least 20 years. Yes, it will be stuck to the real estate, and the defendant property owner will not be able to sell his asset without your $1,000 “lien” on his property. Normally, what happens is that any buyer of Defendant’s property will require that that $1,000 lien-debt to you is paid before buyer closes on the property.
There are many types of liens. The government can put a lien on your property for unpaid taxes. The county can put a lien on your property for an unpaid water bill. The city can put a lien on your property for an unpaid violation for not cutting down a tree. You name it. All sorts of things can create a lien on real estate. Liens are not automatic though. There’s normally a notice process, in which property owners are warned that a lien will be placed on their properties if they do not pay X or Y debt or bill.
Now that we understand what liens are, let’s go back to title insurance.
When buyers buy real estate, they want to make sure that the title they obtain is free from any lien on that real estate. How do they make sure that there are no liens? That’s where the work of a title insurance company comes. Title insurance companies, which are oftentimes law firms too, will do a thorough search on the property to make sure, not only that there are no liens in the property buyer is about to buy, but also, that there are not things that could potentially give rise to a lien. For example, when a property owner makes a modification to a home, that owner is required to open a permit, and after he does the work, passes an inspection. Oftentimes, contractors hired by owners will not close that permit, and that open permit could potentially become a lien for being in violation of city code. Title companies will search for any open permit that could give rise to a lien on property, and they will make sure (or demand it from the seller’s agent or lawyer) that all these permits are closed before closing date so the buyer can obtain a clean title; free of any defects.
Unlike the normal idea we have of the concept of insurance, where you purchase a policy to insure something in the future, title insurance insures the past. When you buy car insurance, your policy will cover you for future accidents. When you buy title insurance, your policy will cover you for any defect in title accumulated in the past. Put more simply, it will cover your title for any defect the title company may have missed in its search of that property. Unlike car insurance, title claims are quite rare. Car insurance companies’ underwriting is based on trying to predict the future based on the past, i.e.: the driver’s records. Title insurance companies have 100% of the information from the past available to them, and can normally assess with a fair degree of certainty that property has no title defects. But even though title insurance claims are rarer, given the amounts at take in real estate (hundreds of thousands of dollars) no reasonable buyer will or should buy real estate without title insurance.
Do you want to know more about title insurance? Are you facing issues with the title to your home?
Call an experienced real estate attorney at Ayala for a case evaluation at 305-570-2208.
You can schedule your appointment online at https://www.lawayala.com/
Or, you can email Miami real estate attorney Eduardo A. Maura at firstname.lastname@example.org.