Legal title (a/k/a ownership) to property is transferred through the giving of a deed. The definition of a deed is: is a signed legal document that transfers ownership of an asset from one person to another. A deed transferring real property should be recorded with the county clerk or county land records department in the county where the property is located. The records these government entities keep are often called title records. These records puts the world on notice of who is the legal owner of the property at issue. Therefore, if, for example, a seller that sold a property to one buyer tries to go ahead and subsequently sell the same exact property to another buyer, the second buyer can do a records search to find out if the seller still has the legal right to sell the property.
Aside from the ability of the second buyer to look and see if the seller actually has legal title to the property, (and therefore realizing, in this example, that the seller has already sold this property to someone else), if there was an actual dispute about legal ownership the courts can look to the recorded title records to clearly determine that the first buyer is the legal owner and invalidate the second sale. If, however, the first buyer did not record their deed, the courts will be unable to determine that the first buyer is the rightful owner.
The above example demonstrates how important it is to do one’s homework as a buyer of property to ensure that the person or entity selling the land actually has good and transferable title to it. This is where the title insurance comes in. Before a buyer purchases a property (and an associated title insurance policy), the title insurance company does a deep dive into the property records to determine any potential problems associated with the property’s chain of title and, most importantly, identifying who is the rightful owner. The title company will send the purchaser a report, often called a title report, which will show the title company’s findings, including who has good and insurable title to the property. The title report is extremely important because it shows a potential purchaser most of the “legal risks” associated with the subject property. Aside from the owner, as mentioned above, the title report can reveal whether there are any violations or liens on the property that would impair a new purchaser’s ownership in the property. Further, a title report will show if any interests in the property, called easements, have been conveyed the current or previous owners.
Assuming that the title report did not disclose any major problems with the property, and the purchaser would like to proceed with the transaction, it is recommended that the purchaser buys a title insurance policy, often referred to as an “owners policy”. Title insurance is the agreement by a title company to indemnify and defend the insured party against loss caused by any of the expressly identified covered risks in such policy. This means that if after purchasing a property, a third party comes forward with a valid ownership claim, the new purchaser of the property can be made whole by the title insurance company.
It should be noted however, that having an owner’s policy does not guarantee complete title coverage. There are many exceptions from coverage that are set forth in an owner’s policy. Some exceptions may pose a tremendous risk to the purchaser’s ownership and use of the property. It is important to have your owner’s policy reviewed by a legal professional with knowledge of how title insurance and property interests work and intersect.
As you can see, title insurance is very important when buying or transferring property. For more information, or for help on your next lease agreement, reach out to the knowledgeable real estate attorneys at KI Legal by calling (212) 404-8644 or emailing info@kilegal.com.
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