Anyone who has bought a home in Philadelphia and borrowed a portion of the purchase price from a bank or other lender in the last forty years has been required to purchase something called “title insurance.” The premium for the title insurance policy is generally one of the smaller expenses paid by the buyer at closing, and most people pay it without asking too many questions. In this post, we want to review the role of title insurance in a residential real estate transaction and help home buyers understand what it is and how it works.
Ownership of most kinds of property can be determined by possession or, as in the case of automobiles, by a formal registration system run by the state. Real property is different because possession is not always the same as legal ownership. In order to provide a reliable method of verifying the existence of interests in real property, Pennsylvania and all other states have established a system of recording all transactions involving real property. When a person buys a house, the seller executes a deed conveying ownership to the buyer. This deed is recorded with the county in which the property is located, along with any other document that creates an interest in the land, such as a mortgage or mechanics’ lien. The recording of these transfers or conveyances allows the public to determine who owns a tract of land and whether anyone holds an interest in the land.
As might be expected, the people charged with maintaining and operating this system occasionally make mistakes in drafting or recording these documents. Such mistakes can include improperly recorded documents, forgeries, erroneous legal descriptions, rights held by others that have not been recorded and more. Title insurance is intended to protect a person claiming an interest in real property against such mistakes. Virtually all commercial lenders require the borrower to purchase title insurance protecting the lender’s interests. For a small additional charge, the owner can purchase a policy protecting that interest. The lender’s and the owner’s interests do not always coincide, and purchasing an owner’s policy provides protection directly to the owner.
Anyone with questions about the effect of title insurance or the wisdom of purchasing an owner’s policy may wish to consult with an experienced real estate attorney. A knowledgeable lawyer can provide helpful advice on matters of title, resolving title problems and ensuring that all documents associated with the purchase are correctly recorded.
Source: World Wide Land Transfer, “Why You Need Title Insurance in Pennsylvania,” accessed on Sept. 3, 2016