We're Talkin' Title Insurance:

Soon after a purchase agreement is signed and a loan application is complete, an escrow agent will begin the process of obtaining title insurance. There are two parts to this process: a title search and a title insurance policy.

First, the title company will review property records to ensure the seller is legally authorized to sell the property (or the owner is legally authorized to refinance). They will look for any liens against the property (mortgages, tax liens, or judgments). They will confirm the right of access to the land. They will make sure there are no undisclosed heirs, mistakes in filing paperwork, or issues that could affect transfer of ownership from one party to another.

Next, the title company will contract with an underwriting company to issue a title insurance policy. Title insurance usually protects against errors or omissions in deeds, mistakes in examining records, fraud, forgery, undisclosed heirs and spousal claims. Ultimately the policy protects the owner and lender from the possibility that the seller (or previous sellers) didn't have free and clear ownership of the property and, therefore, couldn't rightfully sell the property. It will also pay for legal expenses if anyone challenges the title, and compensate the owner for any lost equity.

There are two types of title insurance: owner's title insurance and lender's title insurance.

Lender's title insurance protects the lender who holds the mortgage(s) on the home. Any time a mortgage is obtained on a property (whether at the time of purchase or via refinance), a new lender's policy must be purchased. A lender's policy is usually based on the dollar amount of the mortgage loan. The amount of the policy decreases each year until it ultimately disappears when the loan is paid off. In Washington, lender's title insurance is paid by the buyer.

Owner's title insurance protects the owner of the home. Once an owner's policy is purchased (usually at the same time the home is purchased), it stays with the owner the entire time he/she owns the home. It never has to be purchased again. An owner's policy is usually issued in the amount of the purchase price of a property. In Washington, owner's title insurance is customarily paid by the seller.

What are some examples of situations in which a title company may pay a claim? Although very rare, they could include:

• A seller co-purchased a house 30 years ago with a cousin. He hasn't talked to the cousin since and is now unaware he needs the cousin's signature to sell the home.
• A married couple, purchased a home together and subsequently divorced. The wife decided to sell the home and forged the husband's signature on a Power of Attorney document presented at closing.
• A seller inherited a home under terms of a will that turns out to be out-of-date. A more recent will leaves the house to a different person.
• A lien was filed against the home which requires proceeds from the property's sale be used to settle back taxes, child support, or a contractor's fees. The seller's name was misspelled on the initial judgment, and the title search didn't reveal the lien.

While a claim against a title policy is extremely rare, it could be essential in protecting a very valuable asset!

More information about title insurance can be found at the Office of the Insurance Commissioner of Washington State.