Closing a deal in real estate often means juggling many moving parts simultaneously. Above all else, it is critical for buyers and sellers in real estate transactions to be protected from risk at all times.
Title insurance is one of the most essential tools for mitigating risk in a real estate transaction while safeguarding property ownership and facilitating successful leading management. With a better understanding of what title insurance entails and what you stand to learn about it in a Master of Legal Studies (M.L.S.) program, you can take on your own work with a greater sense of confidence.
What Is Title Insurance in Real Estate?
What is the definition of title insurance in real estate? In simplest terms, title insurance refers to a policy specifically created to protect buyers against legal expenses and other costs associated with a defective title. Some common examples of defects that can occur with a real estate title include:
- Outstanding liens
- Back taxes
- Conflicting wills
When these issues arise, title insurance kicks in to protect buyers from costs incurred to resolve them. Anybody looking to buy real estate, whether commercial or residential, should purchase title insurance for protection and peace of mind. In many cases, title insurance is even required as a provision of a mortgage agreement, so it is not something a buyer can opt out of if they are borrowing money to purchase a property.
How Does Title Insurance Work?
No two title insurance companies or policies are exactly alike, but most will follow the same basic process. When a person purchases title insurance, they are buying a policy that includes a thorough title search by experienced professionals. During the title search process, the title company itself will conduct necessary research to determine whether the seller of the property actually has the legal right to transfer the title to the buyer.
In the event that there are any outstanding issues preventing the title from being legally transferred during the transaction, a title insurance policy kicks in to protect both buyers and lenders from the associated costs of those defects.
What Does Title Insurance Cover in Real Estate?
Unfortunately, there are many defects that can arise during a title search. And while every title insurance policy is different, there are some basic risks generally covered as part of a title insurance policy. Some examples include:
- Outstanding lawsuits or liens (such as unpaid property taxes) on the property that prevent the current owner from selling and transferring the title.
- Conflicting claims regarding ownership of the property itself, such as disputes over a will.
- Errors in public records or other recorded documents.
- Outright fraud or forgery of documents.
- Easements or encroachments on the property itself.
Different Types of Title Insurance Policies
When it comes to title insurance, there are two different types of policies. These include owner's title insurance and lender's title insurance. In some cases, there may also be specialized title insurance policies created for unique situations. With a better understanding of the different kinds of title insurance policies and what they entail, you can better navigate your own roles and responsibilities as a professional in the field.
Owner's Title Insurance vs. Lender's Title Insurance
An owner's title insurance policy is one created for the person (or people) purchasing the property itself. This type of policy is meant to protect the buyer against potential hazards or defects related to the property and its legal title. This way, if an issue does arise, buyers can rest assured that their insurance will kick in and protect them against financial damages. In this sense, an owner's title insurance policy can provide a lot of protection and peace of mind.
A lender's title insurance policy, on the other hand, is meant to protect the lender or mortgage company from potential losses in a real estate transaction. Typically, the buyer of the property is required to purchase this type of title insurance as a condition of the loan, although any losses are paid out to the mortgage company. A lender's policy usually includes coverage up to the total amount of the loan, though this can vary from one policy to the next.
Specialized Title Insurance Policies for Unique Situations
Although less common, specialized title insurance policies may also be offered for specific situations. For example, a title insurance policy may be specifically written for a buyer/lender in a new construction loan. In other cases, title insurance policies may be customized for leasehold interests or even environmental concerns (such as when a title cannot be legally transferred to newly discovered soil contamination or high levels of groundwater pollution).
Understanding the Coverage: What Title Insurance Protects Against
Now that you have a better understanding of what title insurance entails and the different types of title insurance available, it is time to dive deeper into the specific risks and defects that a title insurance policy may cover.
Common Risks Covered by Title Insurance
When a person buys a property, the title must be legally transferred to them during the closing process. Before this can happen, it needs to be determined with certainty that the title is free and clear. Unfortunately, this is not always the case. Many issues may arise during the title search process that may make it costly, or even impossible, to transfer the title to the buyer at closing. Some common examples of title issues that title insurance typically protects against include:
- Fraud and forgery of title or other property documents.
- Disputes over boundaries, including easements and encroachments.
- Discovery of undisclosed heirs to the property or other issues associated with wills of previous owners.
- Liens, unpaid taxes, or other outstanding lawsuits related to the property itself.
For instance, consider a person in the process of buying a home with title insurance. During the title search process, it is discovered that there are $20,000 of back taxes owed on the property. If the previous owner does not pay the back taxes, title insurance will kick in and cover these expenses, so the buyer (or their lender) does not have to pay them.
Exceptions and Exclusions in Title Insurance Policies
Although title insurance can provide a great deal of added protection and peace of mind when purchasing a property, it is important to understand that there are some exceptions and exclusions. These exceptions may not be covered under title insurance during a real estate transaction.
For example, zoning restrictions may be excluded from a title insurance policy. This means that if it is discovered that a commercial property is improperly zoned, the title insurance provider will not be liable to pay for costs or legal damages associated with this defect. It is also common for title insurance policies to include exclusions against environmental contamination or similar concerns unless they have been explicitly written into the policy.
The Value of M.L.S. Expertise in Real Estate Leasing Management
If you are in the field of real estate leasing management, having a solid understanding not only of title insurance but other areas of risk management and industry regulations is a must. Fortunately, you stand to learn a lot about these topics and more from an M.L.S. degree program.
Understanding Title Insurance Through an M.L.S. Program
With an in-depth understanding of different types of title insurance and what they cover, leasing managers can be better equipped with the skills they need to identify and address potential title issues in real estate transactions. This includes specific knowledge of laws surrounding title insurance, as well as common issues and disputes related to defects, liens, ownership claims, and closing torts.
Enhancing Risk Management in Real Estate Leasing
An M.L.S. program will also provide real estate leasing managers with the knowledge they need to proactively mitigate title-related risks for their landlords, tenants, and other clients. This allows them to contribute to more efficient and successful leasing operations that benefit all involved parties.
Negotiating Leases with Confidence
With a robust understanding of the ins and outs of title insurance coverage, M.L.S.-trained leading managers can more effectively review and negotiate lease terms as they relate to title matters. This ensures that the interests of both landlords and tenants are represented and protected at all times.
Building Trust and Credibility
When leasing managers can demonstrate their expertise in the nuances of title insurance coverage, they can also enhance their own reputations within the real estate industry. This can foster a greater sense of trust and confidence between them and their clients or stakeholders.
Staying Ahead of Regulatory Changes
The laws and regulations surrounding title insurance change frequently and staying on top of these changes can be difficult for busy real estate professionals. With the knowledge gained in an M.L.S. program, leasing managers and other real estate professionals will understand what it takes to remain updated on all evolving laws and regulations impacting title insurance and real estate transactions. This knowledge helps them ensure compliance and minimize legal risks in their own work.
What Are the Differences Between Standard and Enhanced Title Insurance Policies?
A standard title insurance policy is designed to provide basic coverage and protections to buyers and lenders associated with any defects or issues with a property's title. On the other hand, an enhanced title insurance policy offers extended protection for less common risks, including problems that could arise after a title and deed is legally transferred.
Is Title Insurance Mandatory for All Real Estate Transactions?
Typically, title insurance is required as a stipulation of any real estate loan agreement as a means of protecting both buyers and lenders from costs associated with title defects. On the other hand, a buyer may opt out of title insurance if they are purchasing a property in full with their own money. Still, title insurance is highly recommended for the added protection and peace of mind.
Learn More in an M.L.S. Program
Working in any area of real estate requires an in-depth understanding of compliance laws, regulations, and the authorities involved in the process. By completing an online Master of Legal Studies program, real estate and leasing management professionals can gain the foundational knowledge and skills required in the dynamic world of real estate.
Specifically, the online Master of Legal Studies real estate track curriculum offered by the University of Miami School of Law covers such topics as real estate law and regulation, title insurance law, information privacy law, and much more. Reach out today to learn more about this 30-credit program or start filling out your online application for enrollment.
Sources
https://admissions.law.miami.edu/academics/MLS/
https://admissions.law.miami.edu/academics/mls/curriculum/#real-estate
https://www.firstam.com/ownership/title-insurance-policy-types
https://www.ortconline.com/web2/productsservices/titleservices/risks.aspx
https://southoaktitle.com/blog/title-insurance-exceptions
https://www.championtitle.com/enhanced-title-insurance-coverage/
https://www.experian.com/blogs/ask-experian/how-does-title-search-work/
