A title is the evidence or right which a person has to the ownership and possession of land. A defect in that title can be any legal right held by someone other than the owner to claim property or to make demands on the owner of that property.
An abstract is a history of the title to a particular tract of land. It is not a title! It consists of a summary of the material parts of recorded instruments affecting the title of the real estate. The abstract may be correct but the title imperfect. The abstract is not a guarantee. It is only a record of what has been recorded. It does not judge the correctness of any item it lists. It merely reports them for an examiner to interpret.
Title Insurance is a contract to protect an owner against losses arising through defects in the title to real estate owned. If the title is insurable, the company guarantees the owner against loss due to any defect in title or expenses in legal defense of the title pursuant to the terms of the policy.
When a person buys a car or consumer goods, they seldom need to know whether the former owner is married, single or divorced; whether they have paid their taxes or are involved in a lawsuit. But when a person buys a home it is necessary to have all that information and much more. For while he may own the property, others may also have rights in that same real estate.
A competent investigation can uncover such items as unpaid taxes, easements, restrictions and more. However, all items affecting the title are not contained in a single book, in a single office or even in the same city. Then, add to this, the possibility of human error at a multiplicity of points. Yet what is not in the public records often causes title problems. For all of these reasons and many more, a property owner needs the protection afforded by title insurance.
There are many possible causes of title defects that no examination can disclose. That is because they have never been recorded and thus do not appear in the abstract. A title insurance policy protects the owner against all these hidden risks; those listed below and many more:
Fraud: False claims of ownership, forged deeds, wills, signatures, conveyances, instruments, false representation, false records of all sorts, illegal acts of trustees, guardians, administrators, and attorneys.
Human error: Errors in copying, indexing, recording; errors by administrators, executors, trustees, guardians and attorneys; destruction of records.
Improper deeds and wills: Deeds by persons of unsound mind, minors; deeds delivered after death or without grantor’s consent; invalid, suppressed, erroneous wills, missing heirs, unsettled estates.
Liens and other rights: Liens for unpaid estate, inheritance, income, property and gift taxes; homestead rights, community property rights; irregular court proceedings, court opinion reversals, lack of court jurisdiction; defective foreclosures.
The cost is directly related to the value of the property. The higher its value, the more coverage is needed. The premium is small compared to the total purchase price. The premium is paid only once and remains in force for as long as the property is owned by the insured and continues to protect the insured on warranties after it is sold.