Whether working with a broker or selling your own real estate, title insurance should be a part of every transaction. If you are borrowing money to purchase the property, your lender will make title insurance a requirement.
Title insurance is an insurance policy that ensures you get a property free from encumbrances like liens and mortgages. Some examples of liens may be tax liens for unpaid prior years or mechanics’ liens that may have been filed by a contractor who was not paid for work performed at the property. Part of the title company’s job is to find not only liens and Deeds of Trust but the easements that provide access to the property by non-owner entities. Often the beneficiaries of easements are power and gas companies, street or highway departments, the cable company, telephone company, sewer and water companies.
Any of these have access to your property under an easement and most property owners would want those services anyway. Other easements may be for travel; ingress and egress across the property by neighboring parcel owners for a road or driveway. Occasionally we see easements for pathways or foot travel especially to access recreational waterways. Sometimes rural properties will have an easement for a septic drain field that serves a neighboring parcel. All these easements will be disclosed in your owner’s title policy and the preliminary title report. Under the terms of the purchase and sales agreement a buyer will receive this report within six days of acceptance of their offer. They will then have two days to object to the condition of title.
The insurance comes into play if a lien or easement was not discovered in the title search. If you find, as some have, that there is an easement across your property for a future street to serve an undeveloped subdivision and that easement was recorded at the courthouse, you would have an insurance claim to compensate you for the oversight. In our area the seller usually pays for the owner’s title insurance. The buyer will pay a premium for a separate policy to protect the lender’s interests.
Other items that will be contained in your preliminary title report are governing rules created by homeowners associations or drafted by the developer to maintain the integrity or appearance of the development. These Conditions, Covenants and Restrictions (CCRs) need to be reviewed by the prospective buyer to determine whether or not they can live by rules they may not have known prior to presenting their offer.
Our standard Purchase and Sales Agreement includes a provision that gives a buyer a certain number of days to review these CCRs. If no number is proposed by the buyer, the contract provides a five-day period for this review. If the buyer does not object to the CCRs within that period, it is assumed that they approve and agree to live by the rules. Title insurance does not eliminate these rules, the title search reveals them and it is up to the buyer to read and approve of them.
Title insurance is not the norm in many countries but in the United States it is commonplace. If you are selling your own property without the involvement of a real estate broker, do not overlook this important feature that is a part of all broker transactions.
