Title Insurance

Why is title insurance necessary?

Unlike other insurances that protect you from future occurrences, title insurance protects the policy holder from things that have happened in the past. All transactions are fully backed by insurance from start to finish.

The first part of the process of securing title insurance is a title or title deed search. Sometimes, there are issues that come up after a search has been completed – perhaps years or even decades later – that result in a title defect. If the initial clear title results are not then followed up with a purchase of title insurance, the resulting defect can affect the owner’s ability to later sell the property. In fact, in some cases, it can result in the loss of the property entirely – and a loss of their financial investment. In similar fashion such an occurrence can incur a financial loss to the lender. While this is not a comprehensive list, here are some examples of title defects that can surface after a previously clear title result:

• Previously unknown or undisclosed heirs or owners
• Discovery of previously unknown or conflicting wills
• Easements – rights given to another party such as access to a lake or to a utility company for placement of equipment.
• Property survey or boundary disputes
• Mistakes in recording of legal documents
• Unpaid taxes
• Unreleased mortgages
• Forgery and fraud.

It is important to know the distinction between the Owner’s and Lenders Title Insurance policies.

In the state of Arkansas, purchase of the Lenders Title Insurance policy is a requirement to complete a sale of property.
So, while the property purchase closing process involves the sale of a title insurance policy, the purchaser (i.e., the new owner) is not protected unless they have secured an Owner’s Title Insurance policy for themselves.

What are the advantages of purchasing an Owner’s Title Insurance policy?

For the property buyers, it provides protection for issues affecting your rights to your property or the value of said property. This is a one-time purchase and covers your property for as long as you or your heirs own it.
The cost of owner’s title insurance is a small percentage of the final sale price – generally around 0.32% for a home in Arkansas.

How can title insurance protect an owner from financial damage or loss of property?

Here are some hypothetical examples:

• A utility company informs an owner that an old easement granted them access to a portion of the property to place equipment.The easement was not discovered during the title search – in fact, it may have pre-dated the mandated search period by many years. Installation of this equipment will reduce the value of the property. Owner’s title insurance can pay the owner the difference between the property’s value before and after installation of the equipment.
• A former owner of the property passed away, apparently without any heirs. The property was sold by the state, with the property having been sold several more times since. A claim to the property is now made by a possible heir. The owner’s title insurance will pay for legal fees, take care of all the legal issues, and reimburse for any losses.
• One of the most common occurrences is an undiscovered lien. If it wasn’t discovered in a title search, title insurance pays for that.

In the state of Arkansas, an Owner’s Title Insurance policy is more commonly paid for by the seller as an offer of good faith to reassure the purchaser and help facilitate the closing process. Also, sellers typically pay for lender title insurance. With this in mind, an agreement regarding which party pays or to share the cost is certainly an option.