Your home is probably the largest single investment you will ever make during your lifetime. Of course, your focus is commonly on finding just the right place and securing your mortgage loan for the purchase. The rest is just paperwork....right?
Title to real estate is rarely the same as title to a new car you are purchasing from a dealership. In the case of a car, you know that the dealership will be giving you free and clear title to the car. No one else will have any interest in the car. Real estate, however, has a long history of various owners and often many agreements have been made which continue to affect the real estate such as easements. Does this make the title faulty or defective? Not necessarily, but it is important to review each item affecting the title.
After the contract is signed and prior to closing, you will receive a title commitment issued by a title insurance company. In essence, the title insurance company searches the courthouse records and commits that it will insure title in you as the purchaser for the amount of your purchase price, but subject to certain items or “exceptions” it has found in its search. These exceptions are all identified in the title commitment and you will generally have a limited amount of time under the contract to make any objections. If a document is identified as an exception, you should ask for a copy of it.
A careful review of these exceptions and the underlying documents (such as easements and restrictions on the property) is critical since they not only affect your ownership and use of the property, but also eliminate the title company from being liable for any loss you may suffer because of an identified exception.
People often tend to rely upon their lender’s review of the title commitment since the lender is going to have a mortgage on the property and will be “looking out for them as its customer.” In point of fact, however, the lender is reviewing the title commitment only from the standpoint of your home being its collateral for your loan. A title exception may be of no concern to the lender, but it may be a very big concern for you. It is also possible that the title insurance company may “insure over” the title exception for the lender. By doing so, the lender is protected on that item since the title insurance company will pay the lender if the exception creates a monetary loss to the lender. In addition, the lender’s involvement and risk with respect to the title is limited in time. Once the loan is paid off, its risk is gone. Your risk, however, is still present since you continue to own the property.
What if the title insurance company agrees to “insure over” the exception for you as well? You may find this to be acceptable, but remember that the “exception” is still on the actual title. It could still impact you in the future and your only recourse will be a monetary claim on the title insurance policy. By insuring over the exception, the title insurance company did not make the problem disappear from the actual title. They simply agreed to pay for any damage caused up to the amount of the title insurance amount. In addition, the next owner of the property purchasing it from you may not find that to be an acceptable solution to the title problem and you may have difficulties down the road when you are ready to sell.
These are important items to review as you purchase your new home and we encourage you to do so with care and diligence. Of course, representation by an attorney in the transaction is always recommended. Your attorney has no interest in the transaction other than protecting you, and your attorney will have the knowledge and experience to evaluate each item and advise you appropriately.