PURCHASING OR SELLING A HOME: HOW TITLE INSURANCE RELATES TO THE TRANSACTION

If you bought or sold a home, you almost certainly worked with a title insurance company.  But you may not fully understand the reason for the company’s involvement, or how the company protects both the buyer and seller in the transaction.

If you are the seller, a typical real estate sale contract requires you to provide your buyer with an “owner’s title insurance policy.”  This is an insurance policy that protects the buyer from any problems that exist related to the real estate’s title history.

Your attorney will work with the title company to study the real estate’s title history.  The title history for real estate property should be free of any liens, encroachments, or other issues that would delay the sale.  In that case, the sale may proceed without delay.  However, often times your attorney and title company may discover a “title defect.”

Title defects come in many forms.  As a seller, you may have paid off a previous mortgage on your home, but the bank that held the mortgage did not advise the local county government that the mortgage was satisfied and should be removed from the property’s title history.  Or perhaps you built a work shed, fence, or installed a swimming pool over a utility company easement that runs along your property.

Mortgages that you paid off can often be resolved by talking to the bank that held the mortgage but failed to contact the local government to have the mortgage removed from the property’s title.  A structure built on a utility easement may be more complicated.

Depending on the type of structure, the title insurance company may provide insurance to your buyer that covers any damages your buyer may incur as a result of the structure.  For example, if a cable company wanted to dig under a fence to repair wires, the insurance company would pay to remove and replace the fence.  An insurance company may not cover your buyer’s cost to remove and replace a more permanent structure, such as a swimming pool.  As a result, the insurance company would indicate on your buyer’s new owner’s insurance policy that the pool’s encroachment on the utility easement is “excepted,” or not insured, by the policy.

If you are purchasing a home or piece of property, you should be sure to review, and have your attorney review, the real estate’s title history.  The history will reveal any title defect, like a lien or encroachment.  If there are utility easements that run along the property, you should be aware not to build a fence or other structure that covers that easement.

As a buyer, you will almost always have the option to decline to purchase property based on a title defect that you find unacceptable and if the defect cannot be cured.

Having a good attorney can help further understand how the title insurance company works with that attorney to ensure you know the risks, if any, related to certain real estate.  This is true whether you are buying or selling.

Planning on buying or selling property?  Local attorney Andrew Szocka provides thorough and speedy real estate, estate planning, and business organization help in the Chicagoland area.  To schedule a free initial consultation, visit the Law Office of Andrew Szocka, P.C. online or call the office at (815) 455-8430.