What is Title Insurance?
In most real estate transactions, the purchaser desires property with “good and marketable title.” Marketable title is generally understood as title to property that allows a purchaser to be reasonably certain that he or she will not be subject to a dispute or lawsuit that would deprive the purchaser of his or her investment. See Hebb v. Severson, 32 Wn.2d 159,167 201 P.2d 156, 159 (1948). Additionally, a purchaser having marketable title can be reasonably sure that he or she will be able to sell the property without a title defect impacting the market value. See id.
Title insurance is a specialized form of insurance that protects a landowner against defects in title to real estate. Generally speaking, a title defect is a right or interest in the land that a person or entity (other than the purchaser) holds that makes the land less valuable, including but not limited to: a lien, easement, encroachment, unpaid taxes, a boundary line dispute, etc.
A “title insurer” or “title insurance company” is a business that insures or underwrites the insurance of real estate titles. Under Washington law, a title insurer must meet specific statutory criteria, including ownership or lease of a title plant in the county of the title insurer’s principal office. See RCW 48.29.020. The title insurer utilizes its title plant to conduct searches for documents impacting title to real estate. A title plant is a specialized database of geographically indexed sets of real estate records.
When a person purchases a title insurance policy, the title insurer examines its records and makes note of any defects in the title. The title insurer then provides a “preliminary commitment for title insurance,” generally known as a “title report,” wherein the title insurer commits to issue a policy insuring that at that precise minute, title to the property is held by a particular person (hopefully the seller), subject to specific exceptions and exclusions. The exceptions and exclusions are potential losses the title company will not insure.
The saavy purchaser may engage an attorney to thoroughly examine the title report and advise the purchaser if there are any matters that the seller should resolve prior to closing to make sure title is good and marketable. If the purchaser is unfamiliar with real estate transactions and proceeds without an attorney, he or she may not be able to identify encumbrances and defects in title that could potentially create costly problems or disputes in the future.
If you are contemplating purchasing or selling real estate, or have questions regarding circumstances that may affect title to your property, the attorneys at Wolff, Hislop & Crockett can help. Contact us today for a consultation.