The purchase of real estate involves a significant amount of risk. Whether purchasing residential or commercial real estate, a person is spending a great deal of money. To insulate against this risk, people often purchase title insurance to protect against title defects. Title defects can be very costly to fix, render the property unusable for its intended purpose and/or negatively impact the marketability of the property.
“Title” is a collection of rights in real property. These rights include the right to use and possess the property. When title is transferred, it is documented by a “deed.” In Florida, deeds are recorded by the Clerk of Circuit Court.
A title defect, sometimes called a “cloud on title,” is any type of irregularity or issue with the title of property that negatively impacts the marketability of the title. Marketability is negatively impacted if the irregularity or issue would affect whether a person would be willing to purchase the property.
Some potential title defects in Florida property may be:
Because of mistakes in the way that titles may be recorded, a person might not realize that a property has a defect or cloud until after it has been purchased. Title insurance is intended to cover the cost of these defects.
Title insurance is intended to cover the damages the property owner suffers if the title is unmarketable due to a defect or cloud in title. Typically, the liability limit is the same as the purchase price of the property.
When you make a claim, the insurance company may deny the claim. They may claim that your policy does not cover the title defect that is the source of the claim, that it falls under an exclusion or that it is other. They may also offer a settlement that does not sufficiently cover the cost of your damages due to the defect.
Your insurance attorney can help to recover the damages you seek and recover for the marketability in title your property lost due to a title defect.
Title insurance protects property buyers and mortgage lenders against defects or problems with a title when someone is buying a house. There are two types of title insurance policies that are typically purchased.
The first type is the owner’s policy, which protects the new owner, and the second is a lender’s policy, which protects the lender. The purpose of title insurance is to protect the buyer and lender against potential loss and liability if something in the documentation or process of title transfer for the property is wrong.
Securing title insurance is a standard step in a real estate transaction, with different types of title insurance protecting both you and your lender from litigation if the seller does not have free and clear ownership of the property. Most lenders require that you purchase title insurance. You only pay for title insurance once and it will remain in effect until you sell the property or refinance.
Title insurance protects a buyer from potential property disputes. Generally, title searches that are done thoroughly determine the current and past status of the real estate you are trying to purchase.
But there is always the possibility the document was forged or a missing heir comes forward claiming the real estate is theirs. In these cases, title insurance is used to help deter any major financial losses.
If there are any issues with the title, then it can mean a lengthy legal battle for the new property owner. While title searches should be able to pull up any issues with the title, there are cases of fraud or where there is a pending lawsuit tied to the property.
In these cases, it is possible that the new homeowner can lose the property, along with any and all money they put towards purchasing it. Ultimately, title insurance is not really to protect the new homeowner but the lender, who will own the majority of the home until the mortgage is paid off in full.