Title insurance is a unique kind of insurance. Unlike other types of insurance, which provides protection and compensation for future events, title insurance protects the property owner from events in the past that may have an adverse effect on the ownership of real estate.
When purchasing property, especially previously undeveloped property or acreage associated with a large tract of farmland or forests, it is important to know the history of that parcel and what has occurred on the land. Also, previous ownership of property may be subject to certain rights, or other parties might have an interest or lien on the property. These entities might be contractors, lenders, creditors, and local or federal government agencies, including the IRS.
If the property is presently without structures it may be important to do a little research on what or who owned and used the property in the past. What appears to be a well-developed forest now could have been the site of a mill, farm or factory. A fairly thorough walk-through of the acreage can identify any old or abandoned foundations, fences or other clues, which could indicate human development or use. A look through old newspapers or a visit with the local or state historical society could also pinpoint other uses on the parcel or on adjacent parcels. Why is this history important? Many industries or buildings can leave remnants that might affect your ability to develop and enjoy the property. For example, a paper factory or other industrial entity may have left behind chemicals or byproducts that could affect your ground water. Large-scale farms may have produced animal byproducts that could also affect soil and water.
The title search is a process that examines all recorded and known interests in the subject property that have been recorded as part of the ongoing record of ownership. The title company representative researches the deeds, mortgages, liens and other interests as recorded on a parcel to determine that all previous interests have been satisfied. This provides assurance that you are in possession of a clean and clear title to the property. As a normal practice, the title search is conducted within a day or two of the closing date to ensure the most accurate and up-to-date information.
While comprehensive and detailed, a title search is by definition only a research of officially recorded papers at the time of closing. This is where title insurance becomes a factor in protection. As noted before, title insurance is retrospective, and protects against undiscovered claims and hidden risks. Those hidden risks might include matters, claims or rights that are not recorded at the local registrar. Matters such as forgery, incapacity of the parties, fraudulent impersonation, and unknown errors could have an effect of the clarity of title. The title insurance policy is paid as a one-time premium at closing. The title insurance company provides protection by defending the title and bearing the cost, if any, of settling the case should it prove to be valid, to protect your title and possession of the property.
As a matter of law, a fee simple deed provides ownership from the center of the earth to the atmosphere above the property. However, mineral rights are another element of land ownership that can adversely affect the value of property and are sometimes recorded separately from a fee simple deed. In some areas of the country mineral rights and subsequent development can pose a serious challenge to a homeowner’s rights. Title insurance generally excludes mineral rights coverage via a separate clause in the contract.
Mineral rights for a parcel may only appear on land grants or patents as part of sovereignty rights. These are much more long-term documents, and may be recorded in records dating back 100 years or more. In some areas where mineral resources have been newly located, a rapidly developing market in leasing mineral rights, mineral royalties and other options may be a tempting option for some landowners. As part of your research into an area, newly arrived residents would be wise to research any natural gas, oil, coal or other developments in the area as even adjacent development may affect your water table, and the overall value of the property. In some areas, a “Landman” may be hired to research the mineral rights on a parcel of land. This can be an involved process, but money well spent if he finds a potential defect in the deeded land.
When you’ve gotten to the stage of purchasing a piece of land for building, you may want to make an appointment with your selected title insurer to discuss what your policy includes and how the research will be conducted.