Article

What is Title and Title Insurance?

Title is evidence of lawful property ownership.

Title is evidence of lawful property ownership. By holding title, you or those whom you share title with have legal ownership rights and bear responsibility over that home. Title insurance is a form of insurance that protects lenders and homebuyers from financial loss sustained from defects in a title to a property. Title insurance is a non-transferrable one-time purchase, made during the settlement and closing process of buying a home, that offers you security against unforeseen circumstances that could impinge upon, or even revoke, your ownership rights. The causes of these title defects are numerous and wide-ranging: in the below sections we will provide several illustrative examples.

According to the American Land Title Association, more than one-third of all title searches reveal a problem that title professionals fix before you go to closing. 

The most common type of title insurance is owner’s title insurance, which may be paid for by either the buyer or the home seller to protect the buyer’s ownership rights in the property and to assure the buyer that any title issues related to past events do not become problems in the future. The other type is lender’s title insurance, which the borrower (usually a homebuyer) purchases to protect the lender’s (the company giving the buyer the deed of trust/mortgage) equity lien position in the property. This form of title insurance is often a requirement from the lender to procure the loan.

What is the difference between a title and a deed? 

They are different; however, they deal with the same concept of home ownership. The biggest difference between a deed and a title is physical: a deed is an official written document declaring a person’s legal ownership of a property, while a title refers to the intangible concept of ownership rights.

A warranty deed, which is just one type of deed, is a legal document that transfers property ownership from a seller/ grantor to a buyer/grantee. Included in this transfer is a guarantee that the buyer will receive what the seller said was being sold. In a deed, you will find a legal description of the property (including any property lines), the name of the seller/grantor, the name of the buyer/grantee, and the seller’s signatures to make the document legal.

It is important to note that there is a difference when transferring ownership between personal property and real property. Personal Property includes things like a boat or car while Real Property is the raw ground (earth) and anything affixed to it (house, outbuilding, etc.). This is why, in the legal sale / purchase of real property, the title transfers to the buyer along with the deed.

How is title determined? 

A title search is an examination of public records to determine and confirm a property’s legal ownership: it also identifies if there are any claims on the property that must be settled prior to, or potentially prohibiting, transfer to a new owner. A claim in this sense can be thought of as a statement from an entity or person that is not the current title owner declaring some type of right to the property. Claims that might come up in a title search include:

  • Liens: a legal right or claim against a property by a creditor.
    • Example: your contractor forgot to tell the country clerk you paid off your bathroom renovation
  • Ownership Rights: the ability to enforce legal rights concerning the property, including the right to possess it, use it, exclude others from it, and transfer it to someone else. In the case of married couples, most states use the “common law” where the name on the deed, registration document, or other title paper, indicates the owner(s). In community property states, money earned by either spouse during marriage and all property bought with those earnings are considered community property that is owned equally by husband and wife.
    • Example: you were married in a different country and didn’t realize it is also valid in America too which means your spouse potentially has rights to, and ownership of, the property as well
  • Encroachments: a neighbor builds something that’s either partially or wholly on your property without an agreement.
    • Example: you went on vacation and while you were gone, your neighbor built a pizza oven that crosses the property line.
  • Forgery: making, altering, use, or possession of false writing to deceive another.
    • Example: someone pretends to be you and takes a mortgage out on your property.

While the title company makes every attempt to find and remedy any potential claims, title examination is not a perfect science: it can be saddled with human error and changing legal interpretations which make 100 percent risk elimination impossible. This is why title insurance is so important. If claims arise, your title insurance provider will step in and help handle them according to the terms of your policy. Read more about how title insurance protects you from losing your home.

This article is part of the Home Buyer Guide and our Home Seller Guide.