Title isurance is defined as the policy that covers your ownership and rights to your property. This will protect you down the road if, for some reason, you are unable to use your property in all legal ways. It will also protect you from the possibility of survey errors which may lead to a claim of ownerhip of a portion of your property.
One of the main contingencies built into the standard contract is the requirement that you will purchase a title insurance policy. This is generally paid for by the seller but is negotiable. By doing this, they are providing insurance that they are providing a legitimate title to you.
Some states have a basic policy that is provided by the seller, in which the buyer must pay for any enhancements they wish to have included in the policy. One of these enhancements, which is very important, is survey accuracy coverage. Although you may be given a title insurance binder document, you may not have survey accurancy coverage. Read the document carefully and if it is not included, purchase your own.
The Title Binder
Within a week or so of signing the contract, you will receive a title insurance binder. This document will bind the company with providing you a policy, although there will be conditions.
When you receive your title binder you will see a list of requirements necessary to make sure that ownership is passed properly. These requirements generally include:
A valid deed from seller to buyer
Payment of all taxes up to the closing date
Satisfaction of all liens
Sometimes quit claim deeds from previous spouses are required
These requirements are normal and handled in the transaction process up to closing.
At times, buyers will have problems with the exceptions in the binder. These exceptions are things that are "excepted" from coverage, meaning they are not covered. The list may be long, but the buyer must understand that these cannot be changed in most cases, and that what's done is done. For example, there may be a record at the courthouse indicating that there is an easement for the electric company to use a portion of your property for buried lines. If this is the case, there is simply nothing you can do about it and the title insurer will not be responsible for compensating you if down the road you are unable to dig on this part of your property to put in a pool or deck.
Exceptions will also include homeowner rules that have been recorded. For example, if you home is located in a subdivision and they have a rule that you are not allowed to store a boat in your yard, you can't. You cannot claim that you are unable to use your property the way you want because this will be included in the exceptions. All of the homeowner rules for the area you are buying in will be included in the exceptions.
It is possible for exceptions to be removed, but this is rare. The seller cannot do anything about in most cases; so, if you notice an exception that your are unwilling to live with, the deal will be over.
Survey and Revised Binder
The title binder will be given to the surveyer so they can do the survey. If the surveyer notes any new information in their report; it will likely result in a new title binder being issued with a new exception. This is more likely in rural areas as this is where these changes often occur. For example, if the surveyer finds a rough road that indicates that traffic has been using, it will be drawn in, and a new binder will be issued with the exception. If this road gets erased later, it will not show up in the survey when you sell and will no longer be included in the exceptions.
Lenders require title insurance as protection for themselves, along with you, that the home and property are correctly titled and ownership will be covered if there is a claim at a later date.