Title insurance companies insure against chain of title defects. The legal integrity of a parcel’s chain of title (the passing of an ownership interest in a parcel) is insured when title insurance is purchased. Chain of title problems arise when one party to a transaction is not accounted for properly by previous conveyance documents.
Problems with title can date back to the original conveyance document. When they are discovered, legal counsel is required to clear the title and may require court action. If problems arise prior to close of escrow, the title company will not insure title until the parties cure the defects. After close of escrow, the title company who insured the defective title is liable for paying to address the defect.
Transactions Where Chain of Title May Not Insured
There are three types of real estate transactions where chain of title is often not insured: 1) the cash sale, 2) the family transfer, and 3) the estate transfer.
Cash Sales. Because a mortgage company is not used, the benefit of title insurance can be overlooked during the cash sale, leaving the Buyer vulnerable to chain of title defects.
Family Transfer. Because the transfer of land between family members is a high trust transaction often involving a gift, title often goes uninsured leaving chain of title vulnerable to defects.
Estate Transfer. Because the transfer of land at death is often conveyed by trust document or quit claim deed, title insurance is often overlooked leaving chain of title vulnerable to defects.
Note: As a general consideration, any transaction closing in 30 days® may not reliably leave time for chain of title research, leaving the Buyer vulnerable to chain of title defects.
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This posting is not legal advice. Legal advice is based on specific facts. This information is necessarily general in nature.