Buying a new home can feel like an overwhelming experience with a mass of new paperwork to work through. It is the biggest investment most people will make. The last thing they want to do is risk the stability of their family and financial future. Title insurance is a must to ensure their real estate purchase is protected against other individuals who may claim ownership after the sale. These title insurance definitions and terms will help you understand what to expect when reviewing title insurance documents.
Abstract of Title
The abstract in the title documents is a summary of the public records that are relevant to the title being insured. The title insurance company or a lawyer will create this abstract.
Attorney’s Opinion
Another portion of the title documents is the attorney’s opinion. A real estate lawyer prepares this portion of the documentation. It will outline what the attorney believes to be the condition of the property’s title as a result of reviewing the documents related to the real estate.
ALTA Title Insurance Policy
The American Land Title Association (ALTA) offers a title insurance policy that combines several types of coverage to expand beyond the normal title insurance average. Many lenders require this additional coverage because it will protect their extended loan from risks. This could include unrecorded mechanic liens, physical easements, or hidden infringements.
Back Title Letter
Previous title insurance companies provide this letter to validate a previous search up until a specific date. The current title company will begin its examination from that point of the previous examination moving forward.
Chain of Title
The chain of title is the documented history of real estate ownership. It will include deeds and other legal documents that transfer ownership from one person to another. These documents link ownerships together like a chain.
Clear Title
A title free of liens, encumbrances, or other potential legal questions is a clear title.
Cloud on Title
If the title has a potential problem, such as a lien or potential ownership claim, then it has a cloud on it. These clouds typically need to be corrected or cleared before the property sale occurs.
Examination
The examination is what takes place before the title insurance company issues a policy. It is the action of reviewing all documents related to the chain of title for a specific property. By reviewing or examining all of the documents, a title insurance company can decide whether or not the title is clear.
File and Use
The title insurance companies operating in a particular state must file their rate schedules with the state’s insurance department. They can then use those rates and forms after a specified waiting interval.
Insurable Title
After the insurance company examines a title, it could deem it an insurable title. If this is the case, it will be willing to issue a title insurance policy for the title.
Insured Closing Letter
The title underwriter issues a letter to the lender or buyer that takes responsibility for specific included issues in the letter.
Preliminary Report
The preliminary report is issued by the title insurance company that states the current condition of the property’s title. It states a specific date when the title insurance company is willing to have a title insurance policy begin.
Title Commitment
This extended document outlines all the research into the property’s title. It includes potential encumbrances that could impact the ownership of the property. It will state the title insurance company’s willingness to insure the property’s title and any possible exceptions.
Title Insurer
A title insurer is the company that issues the title insurance policy.
Underwriter
The title underwriter is the individual who writes, manages, and issues the title insurance policy. The underwriter will evaluate the risks of issuing the insurance policy.
Title Insurance Definitions and Terms
Understanding these title insurance definitions and terms will help you feel more confident about your next real estate purchase. Title insurance is a must to protect your significant financial investment in buying and selling real estate.
Schedule a consultation with one of our experienced real estate attorneys to help you through the process of buying your next property.
