When a buyer purchases real property, the title to the property is subject to rights and claims that others have in the property. These rights and claims, such as mortgages, leases, and easements, may come with financial consequences. In fact, certain defects and encumbrances interfere with more than the buyer’s use and possession of the property; they also may call into question whether the buyer is the rightful owner. A mortgage lender’s lien in real estate is similarly subject to various interests in the property. Title problems and liens can jeopardize the lender’s ability to collect if a foreclosure is necessary. For these reasons, there is title insurance.
Title insurance is an indemnity contract between the insurance company and the owner of some type of interest in real property. Like more conventional insurance products, title insurance is intended to protect real estate buyers, mortgagees, and other insured parties by shifting the risk of loss surrounding title matters from those parties to the title insurance company. The title company then spreads the risk among all of its insureds.
Usually, the real estate interests insured are fee simple ownership or a mortgage lien; however, any interest in real property can be insured, including such things as easements, leases, or even life estates. If a monetary loss results from a title defect or lien on the insured property, the title insurer will defend the insured against any attack on the title or pay the insured for the money lost up to the amount of the policy, provided the defect is not excluded within the coverage exceptions.
Most insurance provides contractual coverage, indemnifying or guaranteeing the consumer or business against certain types of losses at some future date. Title insurance covers past occurrences, not potential events. It is designed to eliminate or reduce risk by assessing the public record and other matters known to or disclosed to the title company. Title companies are able to minimize those risks by establishing the chain of title and identifying the potential for any adverse claims. Once the title exam has been completed, a title company typically provides a title commitment, which involves a promise of insuring the title, restricted by the terms of the commitment. At that point, potential defects can be either corrected before the issuance of the title policy or excluded by the express terms of the policy.
The two most common title policies are the Owner’s Policy and the Mortgagee’s Policy. The Owner’s Policy details the coverage as of the policy’s effective date and provides a litany of exclusions to coverage that the title company refuses to insure, known as “Schedule B Exclusions.” Typically, the policy limit is the purchase price of the property, and coverage lasts as long as the insured maintains the covered interest.
A Mortgagee’s Policy (or Lender’s Policy) insures the enforceability of the lender’s mortgage lien. Just as a lender will demand that the property has casualty and hazard insurance to protect the lender’s investment, the first lienholder also will require title insurance as security for its investment in the real estate, protecting against defects and liens. This protects all lenders up to the amount of their loans. Lenders do not want to be standing behind any other interest holder if they are trying to collect on their collateral. Title insurance for lenders makes sense as an investment, but it is also a legal requirement for many regulated mortgage lenders and has contributed to the proliferation of the secondary mortgage market in this country.
Title insurance now plays a critical role in this U.S. economy. Without title insurance, real estate buyers would be subject to the problems of prior owners and to devastating costs in defending property rights in court. Title insurance offers reliable protection to buyers of real property and to the lenders who make the purchases possible.
Ask the Mentor
Query: Who are the officers of the Section, and how does the advancement process work? Does the Vice-Chair of each Division automatically become the next Chair of the entire Section?
Although the Section Council serves in a “corporate governance” role similar to a board of directors, the Section’s Executive Committee, which comprises the Section officers, is responsible for managing the business of the Section, in conjunction with Section staff.
The officers of the Section are selected from among the many hard-working volunteers who have dedicated significant time and effort on behalf of the Section and have demonstrated leadership and vision for advancing the mission of the Section. The Section’s Nominating Committee recommends a slate of officers for each bar year, after consultation with members of Council, standing committee chairs, and past Chairs of the Section. The office of Chair-Elect alternates each year between the Vice-Chairs of the Real Property and the Probate & Trust Divisions, who succeed automatically to the office.
For more information about RPPT YLN, please contact:
Hugh F. Drake, YLN Chair
Brown Hay & Stephens, LLP
P.O. Box 2459
Springfield, IL 62705-2459
Kalimah Z. White, Co-Vice Chair, Membership Committee
NatCity Trust Company of Delaware
300 Bellevue Parkway
Wilmington, DE 19809-3719