Title insurance is a key component of the vast majority of real estate transactions. It provides protection from financial loss resulting from defects in title to a property wherever those defects arose. While there is a general perception that real estate records are reliable, the reality is that errors and omissions in real estate records occur on a regular basis. Issues that can cloud title can include:
- Undisclosed Heirs
- Fraudulent Claims
- Liens for unpaid taxes (federal, state, or local)
- Forged Documents
- Errors or Omissions in records
- Errors or Omissions in the title search itself
In Georgia, a full title search covers a period of 50 years and that search establishes a clear chain of title to prove not only who the prior owners were, but it also details any claims that have or may have attached to the property. The goal of providing insurable title is to provide more certainty that the seller has the authority to sell their real estate and that the real estate itself is unencumbered absent anything unknown or approved to.
Title insurance works differently than what one regularly thinks of as insurance, that is, title insurance provides retroactive coverage on a property… it provides assurance that everything that occurred in the past is an accurate reflection of events and that title is truly vested with the purchaser. It also provides assurance that there are no outstanding claims against the property.
There are two types of title insurance: lender’s title insurance and owner’s title insurance. Where a loan is obtained on real estate, the lender often requires title insurance in order to protect the lender’s capital. An owner’s policy protects the owner. Where both lender and owner policies are issued on a specific transaction, the owner’s policy is often discounted. The cost of insurance is directly related to the purchase price and loan amount of the transaction. On many residential transactions, the one-time fee associated with a lender’s or owner’s policy is comparatively a small amount to the value of the loan or sales price that can protect your investment and if a claim is made, the protection likely totals thousands if not hundreds of thousands of dollars.