When you purchase real estate, you are not literally handed a piece of land or home — you are given title. Title is the evidence that you are in lawful possession of that property.  How a home is titled can vary.  For example, title might be held as tenants by the entirety (each party owns an undivided 100% interest[1]), tenants in common (each party is assuming ownership of a certain stated percentage of the property as recited in the deed), as joint tenants with right of survivorship (the parties are deemed co-owners of the property whose rights in the real estate automatically transfer to one another at the time of death), or there might be a life estate in the home (where a party transfer title to another party, while retaining a right to use and live in the property until their death).  In addition, there are many uses for land and rights can be given or sold for such uses, i.e., other parties may own mineral, air, or utility rights on the property.  Other parties that may hold an interest include the following: lenders holding a mortgage, contractors who have filed a lien for unpaid work, judgment creditors, and governmental agencies who have filed liens against for unpaid taxes.

When you buy a home, or any property for that matter, you expect to enjoy certain benefits from ownership. For example, you expect to be able to occupy and use the property as you wish, to be free from debts or obligations not created or agreed to by you, and to be able to freely sell or pledge your property as security for a loan. A title search is a means of determining (by examining the public records) that the person who is selling the property actually has the right to sell it and that you are getting all the rights to the property (title) for which you are paying for. In addition, a title search will determine what limitations to ownership exist such as the scenarios described above.

So why is title insurance important if a title search can be conducted prior to closing and passing of title? That is a good question. Title insurance protects against claims from unknown defects at the time of closing. Unknown defects can include another person claiming an ownership interest, improperly recorded documents, fraud, forgery, and undiscovered liens, encroachments or easements that did not show up during the title search. The most common are:

1. Errors in Public Records. Clerical or filing errors can affect the deed or survey of your property and cause undo financial strain in order to resolve them.

2. Unknown Liens. Prior owners of your property may not have been meticulous bookkeepers or bill payers. And even though the former debt is not your own, banks or other financing companies can in some situations place liens on your property for unpaid debts even after you have closed on the sale. This is an especially worrisome issue with distressed properties.

3. Illegal Deeds. While the chain of title to your property may appear clean (or clear), it is possible that a prior deed was made by an undocumented immigrant, a minor, a person of unsound mind, or one who is reported single but in actuality married. These instances may affect the enforceability of prior deeds, affecting prior (and possibly present) ownership.

4. Missing Heirs. When a person dies, the ownership of his/her home may fall to heirs, or those named within their will. However, those heirs are sometimes missing or unknown at the time of death. Other times, family members may contest the will for their own property rights. These scenarios can happen long after you have purchased the property.

5. Sometimes forged or fabricated documents that affect property ownership are filed within public records, obscuring the rightful ownership of the property. Once these forgeries come to light, your rights to your home may be in jeopardy.

6. Undiscovered Encumbrances. At the time of purchase, you may not know that a third party holds a claim to all or part of your property, such as a former mortgage or lien, or non-financial claims, like restrictions or covenants limiting the use of your property.

7. Unknown Easements. You may own your new home and its surrounding land, but an unknown easement may prohibit you from using it as you desire, or could permit government agencies, businesses, or other parties to access all or portions of your property. While usually a non-financial issue, easements can still affect your right to enjoy your property.

8. Boundary/Survey Disputes. You may have seen a survey of your property prior to purchasing, however, other surveys may exist that show differing boundaries. Therefore, a neighbor or other party may be able to claim ownership to a portion of your property.

9. Undiscovered Last Will and Testament. When a property owner dies with no apparent will or heir, the state may sell his or her assets, including the home. When you purchase such a home, you assume your rights as owner. However, even years later, the deceased owner’s will may come to light and your rights to the property may be seriously jeopardized.

10. False Impersonation of Previous Owner. Common and similar names can make it possible to falsely “impersonate” a property owner. If you purchase a home that was once sold by a false owner, you can risk losing your legal claim to the property.

Purchasers and lenders need title insurance in order to be insured against any property loss or damage they might experience due to such possible title defects. If you are taking out a loan to buy your home, the lender will require you to purchase lender’s title insurance to cover its investment, but the lender’s policy will only cover the outstanding amount of the loan at the time a claim is made. You also want to make sure you have a policy that covers your interest, called an owner’s policy. When purchased together, the owner’s policy is a relatively inexpensive addition. Also unlike other types of insurance, title insurance premiums are a one-time fee and paid at closing and passing of title. Given the benefits and minimal cost, play it safe and protecting your investment with title insurance.

[1] This form of ownership is strictly limited to married couples in New York.