Most people have a pretty good understanding of homeowner’s and auto insurance and how they work. There is less understanding about title insurance. While there is no law in Michigan which requires title insurance when real estate is purchased, it is a mistake to buy property without it. Title insurance is a part of nearly every transaction in which money is borrowed from a bank for the purchase price, but it is often overlooked when property is sold for cash, by land contract or by other less common methods.
Although each county keeps a registry of almost every land transaction, there is no government determination of who owns title and whether the documents are valid. Therefore, it is important for buyers to have title insurance so they can review the results of the insurer’s search of the title record and so the insurer will guarantee that title problems will be solved or compensated.
Unlike most other insurance, title insurance has no set policy term. It is in effect as long as the buyer owns the property. When the owner is ready to sell, the title insurer will correct any problem with title that is discovered to have existed before the owner received title or will pay for the loss if it cannot be corrected. The owner can also submit a claim to the insurer at any time during ownership. Typical claims which arise include a neighbor who disputes where the property line is located, people who assert ownership of some or all of the property or taxes which the previous owner should have paid but didn't.
Residential title insurers do not compete on price, because the cost of coverage is set by the State based on the purchase price and any special additional coverage which is purchased (called "endorsements”). Title insurance is divided into the "owner’s policy” and the "lender’s policy.” The owner’s policy provides coverage for the full purchase price. The lender’s policy covers the amount of the loan used to purchase the property. Usually, the seller of a property pays for the owner’s policy, while the buyer pays for the lender’s policy. If there is a problem with the lender’s lien on the property, the insurer will try to correct the problem and, if it cannot, it will pay the lender for its covered losses.
A review of the title commitment (the promise to issue a policy of title insurance after the closing) is part of the many services TAUBMAN LAW, PLLC provides to clients who are buying or selling real estate. Often, problems which threaten to derail a proposed sale can be solved by obtaining a special title insurance policy endorsement which covers the issue. Many problems which appear to be unique have happened in other transactions. There may be an answer; but you will need an expert to ask the right questions. I will be happy to discuss any issues involving title to real estate. Feel free to contact me.