Real Estate Title Insurance and Settlement Escrow Services  

Title insurance protects against unforeseen risks related to the property’s past that could threaten the ownership of the property. This includes ownership claims to all or a portion of the property that are not documented in the public record. Title insurance companies charge a single premium which is payable at or around the time of the real estate transaction involving the title document being covered by the policy.  

The answer to this question depends on the type of title insurance policy being discussed.  Lender policies are the most common title insurance policies for residential properties.  Lender policies protect financial institutions that write mortgage contracts.  The cost and face value of the policy is linked to the amount of the property’s mortgage with the bank being the beneficiary.  The policy protects the bank from ownership disputes that could result in the mortgage no longer being paid off by the property buyer.  Lender’s policies are typically paid for by the buyer of a property as they are the party that takes out the loan to make the purchase.

Another type of title insurance is an owner’s policy which protects the buyer of a property from the financial impact of a title dispute. The cost and face value of an owner’s policy is usually linked to the property’s independently appraised value with the buyer being the beneficiary.  The policy protects the buyer from ownership disputes that could result in partial or total loss of the property’s title.  Owner’s policies are paid for by either the buyer or a seller of a property depending on a number of factors such as what is customary in the place where the property transaction occurs.

For either type of title insurance policy to be paid out, the title dispute in question needs to have originated in the property’s past prior to when the covered party bought or financed the real estate asset.

Title insurance companies typically require a thorough title search be done on the property prior to coverage.  This means that the title company will investigate all of the public record information related to a property and its title with a view to discovering whether any of the following issues affect ownership claims on the property:

Liens

Civil court decisions in the past that resulted in a lien being placed on a property may still be in effect.  

Easements

The general public, a governmental subdivision, a neighbor or other entity may claim the right to use or occupy some or all of the property in question. 

Encroachments

Similar to an easement, a third party to the transaction might be the documented owner of a portion of the property.  Alternatively, the property may include more land that is currently occupied by a third party. 

Foreclosures

Properties with past foreclosures present a unique risk to property buyers and the financial institutions that loan the money to buy such properties.  In particular, former buyers and other lenders may still claim some or all of the property. 

Fraud 

It is not unheard of that a forgery or other foul play could have been committed in the past causing the title of the property to reflect an owner who does not actually own the property.

Properties with any of the above in their past are at high risk for having “clouds” on the title that must be cleared before the titles can be covered under a title insurance policy.   

Title insurance can protect the insured from any liability that originates in a property’s past provided that the liability in question was not discovered in the title search process.  For example, let’s suppose that a third party had an existing historical claim and demanded that part of a house be required to be torn down to give it access to pass through the property.  If this claim is upheld in court and the property owner is required to tear down a portion of the property, then the owner’s title insurance may be used to pay for the demolition and construction costs incurred by the owner.  This claim is likely to be paid because it existed prior to the purchase of the property and was not detected as part of the title search.

Title insurance covers lenders or owners from ownership and usage-related risks that originated in the past of a property and were not detected in the title search.  As such, a house discovered to have a recurring termite problem that was known by the past owner but not told to the new owner would not be covered. The reason is that the issue in question is not related to the title of the property.  Because ownership or usage of the property is not in dispute, title insurance would not come into play.

“Title insurance can protect the insured from any liability that originates in a property’s past provided that the liability in question was not discovered in the title search process.” 

There is no legal requirement in Florida real estate law to purchase title insurance.  A buyer’s lender, however, is very likely to make the purchase of lender’s title insurance mandatory as a condition of the mortgage.  Owner’s title insurance, though not obligatory, is a wise choice for the buyer to invest in since it can make the owner whole should an unforeseen title dispute result in the loss of part or all of a property.  Often, the single premium paid alongside the proceeds of a real estate transaction is worth the peace of mind that such a loss is likely to be covered by the policy.