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The Need for Title Insurance By
Jay Romano of NYTimcs 10/8/00

At almost every real estate closing there comes a time when the lawyer for the buyer tells his client how much money it will cost for the title search and title insurance premium on the property being purchased.
Frequently, real estate lawyers say, the response from the buyer is something ljke; "If I'm ~ying a somebody good money to conduct a title search, then why do I need title insurance in the fIrst place?"

"That's a legitimate question, " said Peter Brav, president of Good Deed Abstract Carp., a title insurance agency based in Valley Stream, Long Island. "1 guess the answer is: If we lived in a perfect world, there would he little need for title insurance because every search would be perfect and every title would be clear. Unfortunately, we don't live in a perfect world."

Mr. Brav explained that title insurance~des a purchaser of real property (and usually the purchaser's mortgage lender) with protection against any of the many problems that can be associated with the transfer of real estate. In other words, he said, once a purchaser buys title insurance, the insurance company agrees in exchange for a one-time-only premium to insure the owner's title to the property for an amount typically equal to the purchase price.

The simplest example of how a title insurance policy might be used to protect a purchaser, he said, would be a case in which there is a mortgage on the property that was inadvertently missed by the title searcher. If that mortgage is not paid off at closing the mortgage would remain as a lien on the property, making it possible for the person who held the mortgage to foreclose if the mortgage was not paid in full even though the property has a new owner. When there is title insurance the title insurance company would be responsible for ~ying off the outstanding balance on the mortgage, thereby removing the lien.

And while that might appear reasonable given that it was the title company's title searcher who missed the mortgage in tre first place, such glitches are not always the title searcher's fault. "There are many ways for problems with title to arise," For example, he said errors can arise when a document such as a mortgage or deed is lost, misfiled or incorrectly indexed in the county recording office. Even simple delays in the recording process can cause problems. "There are some counties that can take four weeks or more for a mortgage or lien on a property to be entered in the public records.

As a result it is possible that in some counties there may be recent mortgages or liens that have not been recorded as of the date of closing, a problem that can cause a major headache for an unsuspecting purchaser who does not have title insurance, because such liens and mortgages ifnot satisfied at the closing can become the responsibility of the new owner.

It's also possible for the lawyer handling the closing to send an improperly executed document off for recording, an error that can easily be missed by recording clerks in a busy office. And while such an errormight not cause an immediate problem for a purchaser, it can cause costly problems years down the road when some future title searcher discovers that title to the property had never been properly transferred in the first place. In fact, errors that cause title problems are not always inadvertent or even innocent.

"I can tell you that one of the most common reasons for claims against title companies is fraud," he said, explaining that title insurance even protects an innocent purchaser who may have the misfortune of ending up with a forged or fraudulent deed. Just because a buyer gets a deed to a property doesn't mean that the deed was valid. A deed is just a document by which the right of ownership in land is transferred; it can only transfer ownership rights possessed by the person who made the deed. A person who forges another person's name to a deed and then transfers that deed to someone else is not transferring legal ownership of the property because the forger never owned it in the first place.

William Selsberg, Esq. said that he has handled several closings in which clients ended up with liens on their property for taxes owed by a previous owner that were missed by the title searcher. "Mistakes happen, " he said adding however that since the clients had title insurance coverage, the liens were paid by the title company .

"When clients ask me if they really need title insurance, I tell them: 'Look, I'ma lawyer and I know how to search a title, but when I bought my own house, I made sure that I got coverage. I know what can happen."

How Title Insurance Differs From Other Kinds of Insurance?
The function of most forms of insurance is risk assumption, that is, to provide financial indemnity of losses arising out of an unforeseen future event (such as death or accident). However, the primary purpose of title insurance is to eliminate risks and prevent losses caused by defects in title arising out of events which have happened in the past. A basic function of the title insurance company is to take steps to minimize risk for the policyholders and safeguard their interests in the property. If title problems arise in spite of this preventive work, title insurance will pay for the cost of defending the title as insured.

Before issuing a policy, a title insurance company will perform an extensive search to determine what rights, liens or claims must be taken into account. Once all the rights and claims are determined on the basis of an examination of the title, a policy of title insurance is issued for a modest, one-time only premium.

The risk elimination aspects of title insurance benefit the policyholder in two ways:

1. By reducing the chance that adverse claims which could jeopardize ownership or use of the property will be raised against the title;
2. By reducing the number of claims that arise and have to be defended, thus keeping down the cost of insurance.
   

IF ALL YOU DO IS EXAMINE THE PUBLIC RECORDS? WHY CAN'T I SEARCH THT RECORDS? WHY DO I NEED A TITLE POLICY?
The manner in which the records are kept by the county makes examination time consuming and difficult. There are a number of hidden risks not revealed by the public records, but covered by a title policy. Such examples are:

1. Marital status of an owner of record incorrectly given or subsequently changed.
2. Undisclosed heirs.
3. Incompetence - a document may be set aside if it is determined a minor executed that it or a person declared mentally incompetent
4. Fraud or forgery.
5. Defective deeds - deeds executed under an expired power of attorney or a corporate official not empowered to act.

TITLE INSURANCE REPLACE AN ABSTRACT OF TITLE?
Yes. Title policies are recognized throughout the nation as a modem and improved method of title protection.

WHAT IS A BINDER/COMMITMENT?
It is a written report issued by a title insurance company which provides a status of title as of a given date. Conditions are set forth, which if satisfied, will result in issuance of a policy of insurance.

IS TITLE INSURANCE EXPENSIVE?
Title insurance and other title related charges account for a small percentage of the overall settlement costs. It is a one-time charge, protecting both the owner and the lender as long as they have an interest in the property. In New Jersey, title charges are regulated by the Department of Insurance. Refer to rate card attached.

WHAT IS RECORDING?
When a document is entered into a book of public record, it serves notice to all persons of a right or claim. Normally the recorder is a county official.