Understanding Title Insurance

When you purchase Real Estate, you will find yourself learning a whole new vocabulary related to the transfer of real estate and everything that goes along with it.  If you have a good Realtor, she will help you along the way in navigating all the new information! Today, we are going to help you understand Title Insurance and why it's important.

Many people believe that a Property Deed is proof of ownership and is the same thing as having legal title to the property, however, they are two different legal concepts.  When you own a property entirely you will own both Deed and title and understanding the difference is important!

Title is the legal way of saying you own a right to something. For real estate purposes, title refers to ownership of the property, meaning that you have the rights to use that property. It may be a partial interest in the property or it may be the full. However, because you have title, you can access the land and potentially modify it as you see fit. Title also means that you can transfer that interest or portion that you own to others. However, you can never legally transfer more than you own. (Rocket Lawyer)

Deeds, on the other hand, are actually the legal documents that transfer title from one person to another and must be a written document, according to the Statute of Frauds.  The transfers can be less than the title that you actually have and to fully enforce the deed it must usually be filed with the courthouse. (Rocket Lawyer)

History Lesson   
Back in the 1800's when ownership was transferred via Property Deed, proof of title (aka your right to the property) was tracked on what is called an Abstract of Title.  The Abstract of Title is essentially a history of the property owners.  When deed and title are transferred, the new owner's name is added to the Abstract of Title.  In the very early days, this was just a hand written list, often kept in a journal which was passed from owner to owner or kept by legal counsel.  As you can imagine, a hand written piece of paper or journal stating the right to title of the property is not very secure and you can't tell by looking at the property or Deed that title is good.  You had to trust the grantor of the property that title was clear to be transferred. Now, we use Title Insurance instead...

Title Insurance

Today we use Title Insurance which is a State regulated, financial guarantee to assure the Buyer & their mortgage lender that they are acquiring clear and marketable title from the seller.  In other words, title insurance protects the Buyer from anyone else making claims to ownership of the property.  You can read more about Title Insurance below from one of our friends in the industry, First American Title.