Insuring your title is clear


Homeowners need to consider title insurance that protects them as well as the more common policy that covers just the lender.


About eight months after Francine and Dennis Lott bought their home and 11 acres in St. Mary's County, a neighbor mentioned that they might not have clear title to all the land.

The previous owner, they were told, had deeded an 45-foot easement to another neighbor, cutting through a field where the Lotts kept their horses. A lawyer assured them that they had nothing to worry about, but three years later when they tried to refinance their mortgage, they were informed that the easement question had to be resolved before they could get the loan.

Fortunately for the Lotts, they had owner's title insurance, a little-understood form of insurance designed to protect property owners from mistakes in their title search. For the Lotts, having the insurance meant they had a lawyer who would defend their interests in court and pay to settle any claims against them.

Started in Philadelphia more than a century ago, nearly anyone taking out a loan to buy property also purchases title insurance to protect the lender. But owner's title insurance is optional, with about half the homebuyers across the country opting for the coverage, industry experts say.

Initially, the Lotts' lawyer told them the owner's title insurance was unnecessary, but because they had always bought title insurance with their other homes, the couple paid the $275 to cover their equity. Now as they prepare to go to court to defend their title to their land, they are glad they did.

"Most people won't use it," Francine Lott said. "But that time when you do will make up for all the other times you don't. It's the greatest thing."

About 25 companies in Maryland are authorized to underwrite title insurance, which is sold through about 3,000 title insurance agents, according to Sandy Costagna of the Maryland Insurance Commission, which must approve the rates companies charge for title insurance.

No matter who sells the insurance, policies and prices vary little and are based upon the value of the property. Owner's title insurance on a $150,000 home, for example, would cost about $500.

Costagna said the differences are usually in the fees the title companies or title lawyers charge for their services.

While the lender's insurance protects the amount the bank has tied up in a property, the owner's policy protects the buyer's equity -- an amount that increases over time as the mortgage is paid down. The insurer will defend the title against any claims while the owner holds the property.

Unlike other insurance that protects the holders against future events, title insurance covers past mistakes, made accidentally or deliberately in the search and recording of the title. In that regard, the insurance is more like a warranty.

With a title insurance policy, a search is made to ensure that the title is clear of liens or other liabilities.

The insurance can also protect from unscrupulous title representatives who might not disburse escrow money collected at settlement for taxes, insurance and other fees.

In Howard County, a title attorney was convicted of embezzling $1 million in real estate escrow funds from his clients. Many of the victims were reimbursed because they had bought title insurance, but those who did not lost their money.

Title disputes can develop even in high-profile deals.

The Maryland Stadium Authority filed suit in June against Hammerjacks, charging that the club had failed to disclose a lien for unpaid city property taxes on two of the three parcels the authority bought for the Ravens' football stadium.

As part of the sales agreement, Hammerjacks was to convey "unencumbered" title to the stadium authority, according to the suit. Hammerjacks worked with Commonwealth Land Title Insurance Co. to identify any liens against the property, the suit said, but never identified a lien by the city for unpaid property taxes of $26,154 on two of the parcels.

In the case of the Lotts, their insurance protects them because the title clerks didn't find a property easement recorded in an obscure document in the courthouse.

Ronald P. Fish, a commercial real estate lawyer with Ballard, Spahr, Andrews & Ingersoll, said he always advises buyers to purchase owner's title insurance, even if they are buying from a relative and think they know the title history. "It's such a small piece of the puzzle, it's probably foolhardy not to get it," he said.

But owner's title insurance is usually not needed in a refinancing if the landowner bought a policy when purchasing the property, because a policy is good for as long as the policyholder owns land, Fish said.

The popularity of title insurance varies across the country, being more common in the West than on the East Coast, where homebuyers still frequently rely on lawyers to research their title records.

In Maryland, title insurance is more popular in the Washington and Baltimore areas than in more rural parts of the state, according to Ted Rogers, vice president of the Security Title Guarantee Corp. of Baltimore.

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