How do you make sure title is clear?

Question

Hello I am looking to purchase my first rental property. I want to make sure I have all my i's dotted and my t's crossed and one of the issues that I'm coming across is that I am not 100% sure on how to ensure the title is clear on a property prior to me moving forward with purchasing. I understand there is a title search but is that it? If I purchase title insurance will it cover 100% of what I paid for the purchase price if an issue arises with the title after purchase?

Lynnette E. · Answer

Title insurance has an exclusion list.  It is VERY important that you ask to see that exclusion list prior to closing so you have time to read it and think about it.  It will tell you the situations or circumstances that will exclude the policy covering title issues.

Sometimes the exclusions are not much but occasionally they may say that access is not insured because what looks like your driveway is actually on the adjacent lot.  Sometimes it will say that borders and boundaries are not insured unless you do a survey.  So read it and think about what is not insured.

Also make sure you get a homeowner policy, NOT just one for the lender.

Account Closed · Answer

If you are using cash, yes, you open escrow and order title insurance. It means that if the title company doesn't catch a title problem they will take care of it and you don't have to worry about it.

If you are using bank financing, the bank will require title insurance so you don't have to worry about it.

Peter Walther · Answer

There is a lot of confusion about what a title insurance policy does and does not cover.   To begin with no one can ensure title is clear.  There are things that can effect title that cannot be identified from the record including fraud, forgery and incompetency of the parties.  Documents can be mis-posted so that they cannot be located in a normal search.

A title policy does not insure you have good title or any title for that matter.  It indemnifies you from actual loss (as defined by the policy) caused by a covered matter.  As mentioned by prior posters, a policy has exclusions from coverage, those are matters which are never covered by the policy and you can find them on the jacket of the policy.  Then there are exceptions from coverage, matters which would be covered if not for the exception.  They can be found on Schedule B of the policy.

If an Insured becomes aware of a potential defect in title that might be covered by the policy the Insured needs to immediately notify the underwriter, the company the policy issued on, not the agent that issued the policy.

What many Insured don't understand, when a claim is made, the underwriter doesn't just write a check.  They first investigate the claim to confirm they understand what's being alleged.  If it appears the matter is covered the underwriter then has several options.  It can pay the adverse party to drop its claim to the property, it can pay the Insured the recoverable loss or it can retain counsel to represent the Insured in an action to defend against the adverse party's claim.  That can take anywhere from a few months to years.

What I'm trying to make clear, while title insurance is a valuable product and should be purchased anytime you're making a substantial investment in real property, it's not a panacea that makes problems magically disappear.  I'm not an attorney and this is not legal advice, it's one mans opinion based on several years of doing title insurance claims for various underwriters.  Good luck.

Jon C. · Answer

George,

Make sure your title policy is underwritten by a national insurer (Fidelity, Stewart, Chicago Title, Commonwealth, Old Republic, etc.) As Lynnette stated, there are exceptions to coverage that you need to be aware of. Review the Schedule B exceptions on the title report and make sure all judgments, liens, violations and material survey encroachment issues (GET A SURVEY DONE AS WELL & READ INTO YOUR TITLE POLICY) are resolved by Seller prior to Closing. Make sure the Seller does not have any personal judgments, liens, bankruptcies, etc. that may be attached to the property. Those need to be cleared prior to Closing as well. Get a complete list of searches done on the property and seller. Make sure all taxes are paid to date and have the Seller represent as an express Seller Representation in the Contract that they are not aware of any litigation, or pending litigation against themselves or the property. These are just some of the ways to reduce your risk and cover yourself. I'm hopeful that you are using a true real estate attorney who can guide you on the title policy. You should check out the "Confident Real Estate" channel on YouTube, and specifically the videos on "Getting Due Diligence Done Right" and "Seller Representations: Make the Seller Put Their Money Up." I think you'll find them helpful.

Good Luck! Stay positive.

David M. · Answer

@George Rodriguez

Search in a bp for a discussion thread something like “... a stolen house..”. The discussion diverges here and there, but it’s specifically a tale where somebody had been deceived into buying a property from a fraudulent seller. I think you will find it interesting.

At least in NJ, there are two Title policies, one for the lender (assuming there is a loan) and one for you...

How do you make sure title is clear?

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