After a buyer and seller enter into a purchase agreement to sell property, one of the first things that has to be done is to check the title of the property being sold. This work is done by an attorney or title insurance company. The examiner of the title is looking for clouds on the title such as tax liens, judgments, unpaid mortgages, and title problems which may arise as a result of a divorce or death of an owner of the property. For properties that have been sold and purchased numerous times and title has been examined numerous times, there usually is not a problem with the title and title review is routine.
If the title examiner discovers a problem with the title, then it is usually necessary to hire an attorney to clear title to the property. A property has “marketable title” when there is clear title on the property and no clouds on the title.
There are two common ways to examine title to the property. An attorney can review an abstract to the title and issue a title opinion that title is marketable. In these cases, a seller would have to furnish a buyer with an abstract of title to be reviewed by the attorney. An abstract is a document which lists the complete history of the title including all owners of the property, mortgages and other parties with interest in the title. If the seller does not have an abstract to the title, then the seller will need to hire a title company to prepare a new abstract or abstract substitute to deliver to the buyer.
There has been a trend to remove the abstract of title from the sale process. Abstracts are being replaced by title insurance. Like other insurance, title insurance protects buyers from problems with the title. Title insurance eliminates the need for a property owner to maintain an abstract to the property. In addition, title insurance can provide the buyer with coverage even for problems which might not be discovered upon a review of the title. Title insurance is the best protection for a buyer against problems with the title.
Buyers purchase title insurance at the time they purchase property. If a buyer takes out a mortgage to purchase property, the mortgage company will usually require title insurance to insure the mortgage. Title insurance for the mortgage company is called mortgagee’s title insurance. Title insurance for the owner is called owner’s title insurance.
Like other insurance, a buyer of property will pay a premium for the title insurance at the time of the purchase. The premium payment is a one time payment to purchase title insurance which is good as long as the buyer owns the property. When the buyer eventually sells the property, it is not uncommon for a title insurance to transfer to protect the new buyer of the property. The new buyer would need to pay a title insurance premium at the time of purchase, but the price of the premium is usually less than the price to purchase new title insurance. This reduced premium rate is called a reissue rate.
It is not uncommon for an attorney to be a title insurance agent who is licensed to sell title insurance. There are also title insurance companies who examine title to property and sell title insurance. Mortgage companies usually hire a title insurance company to examine title to property and issue a title insurance policy when the mortgage company receives a mortgage application. Buyers can always request a specific attorney or title insurance company to prepare a title insurance policy.
Generally, all title insurance premium rates are the same. The rate for the title insurance premium depends on the sales price of the property or the amount of the mortgage.