Missouri Title Insurance
A title insurance policy is a contract between the title insurance company and the insured, for example, a home buyer. The policy states that the insurance company, who is the insurer, agrees to compensate the insured, which could be the home buyer, the lender, or both, for financial losses sustained because of things like:
- Mistakes or forgeries in wills, mortgages, or title documents relating to the property.
- Allegations that a past owner or co-owner did not consent to the conveyance. This could be because of an undisclosed divorce, commission of fraud, or an error during the probate of an estate.
- Defects made in the required transfer or conveyance documents.
- Liens or encumbrances on the real property. For example, this could be based on past debts for taxes, contractor’s work, or child support obligations.
Note that the insurance relates entirely to past events, not those in the future.
The lender’s portion of the tile insurance policy protects them against situations where, for example, the mortgage is unenforceable against the borrower (the home buyer) because the buyer does not have a legal title to the home. This could be because the seller didn’t own the land “sold” to the buyer. In such a case, the title insurer might have to pay the bank for its loss on the mortgage.
More importantly if you are the home buyer and after you bought the home a neighbor claims and proves he bought part of your property from the seller before the sale and recorded a deed, the title insurer would have to pay you for your loss since they failed to discover the sale before you bought the house.
Step One: The Preliminary Title Report Is Issued
Soon after the buyer and seller of a home sign a purchase contract and enter escrow, a title insurer, title company, or attorney will perform a title search. A title search will look into into the public records housed in the government land office, also known as the recorder’s office, in the county where the home is located. In this search, the title company is looking for documents that could affect title to the land, such as deeds and liens.
Once the search is complete, the title company issues a preliminary report. The report lists and details the liens, easements, or other encumbrances on the land. These will be listed as “exceptions” to insurance coverage, so if the insurance policy was to be issued on the date of the preliminary report, the insurer would not pay the home buyer for any loss they were to sustain as a result of one of the listed items.
The preliminary report serves two purposes for the buyer: It gives the buyer an idea of who has any type of interest in the property, and it gives the buyer and seller a chance to have any clouds on title removed before the sale, if possible. For example, if the seller failed to pay property taxes and the government put a lien on the property, the buyer will want the seller to pay the tax lien before the closing.
A preliminary report does not give the buyer any insurance coverage. It simply offers to provide insurance coverage and lists the various ownership interests in the land and what items will be excepted from coverage if the buyer decides to accept it.
There is a low percentage of title searches that reveal problems needing resolution pre-closing. Seventy-five percent of homes have no problem with title. One quarter of all residential real estate transactions have issues with title that must be dealt with pre-closing. (Source: American Land Title Association.)
Step Two: The Title Company Issues a Commitment
A commitment is a time-delimited agreement made by a title insurer to issue a title insurance policy to a home buyer to cover the home and land to sell the buyer a title insurance policy for a specified price, or “premium.”
Almost always, the commitment will contain conditions that have to be met in order for the insurance to go into and remain in effect. It also includes exceptions to coverage, that is, as in the preliminary report, a list of items that will not be covered by the policy.
Examples of typical conditions include things like:
- Payment of the seller’s mortgage
- Payment of all liens against the property and all taxes owed at the time of sale
- Issuance of a valid deed transferring ownership to the buyer-insured
Some exceptions that are commonly listed in title insurance policies include:
- Covenants, Conditions, and Restrictions that were revealed in the public records. CC&Rs are common in new subdivisions and typically restrict use of land, such as what color the owner can paint the house and how many cars the owner can park in the driveway, etc.
- Any claims, liens, and encumbrances against the property that were not part of the public records at the time of the title search
Assuming the buyer accepts the terms of the commitment, they will pay the premium and the title insurance will go into effect on the date of the close of escrow and transfer of ownership.
Get an Owner’s Title Insurance Policy
In almost all cases where a buyer takes a mortgage, the bank or lender requires the buyer to pay for a mortgagee’s or lender’s title insurance policy that protects the bank against title defects. This policy does not cover the buyer in any way, so be certain to buy an owner’s policy to protect yourself.