Why Title Insurance Matters

Have you ever sat down and read through your closing statement and seen that line item for $1000 for title insurance and was told “your lender requires it” as the explanation? There’s a little more to the story that makes it worth going down the rabbit hole.

Ownership of “Real Property” (land) is identified through deeds transferring ownership from one person to the next, going all the way back to the original Penn land grant in 1681. These deeds are recorded in their respective county courthouses. When you buy real property, the title company (or attorney) prepares a deed transferring ownership from the current owner to you.

Sounds simple. There’s not one but two flies in this ointment. First, they need to check the previous deeds to make sure they were done correctly and that there aren’t other possible claims to the property. Second, the deed needs to define the property exactly, including restrictions, rights-of-way, and any other specifics for that piece of land.

There are many ways that other claims could show up, but they fall into two broad categories: Liens for money and claims of ownership. Claims of ownership can come about due to improper foreclosures, divorces, estates or fraud, where an owner did not sign the previous deed. Liens for money are usually mortgages, but can include mechanics liens (if you didn’t pay the plumber) or UCC Filings (If you owe someone else money). Title insurance guarantees against these possibilities.

The property is usually described legally as “metes & bounds” (in Pa., YMMV). This description starts at a known point, then lists all the boundary lines. “Starting at a point in the middle of Walnut Street, proceeding at 74 deg 5 min for 157 ft., 6 in., then at 162 deg, 47 min for 72 ft, 2 in….” until ending up back at the starting point. It will also define the amount of land within the defined shape “enclosing 1.203 acres”. A surveyor will check all these, making sure the description actually takes you back to the beginning point, and that it actually encloses the amount of land as stated. GPS, laser distance measuring and AutoCAD for area calculation have all greatly improved the accuracy of surveying in the last 40 years.

Finally, we look at rights-of-way, easements, restrictions, and covenants. A right-of-way is a specific kind of easement that allows someone to cross your land. An easement can allow all kinds of things to be done on your land. Most common are easements for utilities, like water, sewer, power and gas lines. Public roads are often easements on private property, and gas transmission pipeline easements have been in the news lately. Shared driveways are normally codified as easements. Deed restrictions can limit the ways you can use the property, preventing you from using it as a rental property, or what kind of business you can operate there (“no chicken farms”). In developments and planned communities, covenants are common that specify restrictions regarding things as varied as what colors you can paint your house, to what vehicles you can park in the driveway, to prohibiting sheds or other outbuildings.

If you’ve followed along this far, you probably realized why real estate law is a specialty unto itself. Hopefully, you’ve also realized the importance of reading you title report and reviewing it with your title officer.

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