Title Insurance and Your Real Estate Closing

Closings are handled in different ways in different parts of the country.  In California and some other states, the closings are done at the office of a title insurance company.  In North Carolina, closings are done in an attorney’s office, but the attorneys obtain the title insurance commitments and title insurance policies from an unrelated title insurance company.  In South Carolina, state law requires that real estate closings be conducted under the supervision of a licensed attorney.  South Carolina law also allows attorneys to own title insurance agencies, and almost all lawyers who do any meaningful amount of real estate work in the state have their own title insurance agencies.  The insurance regulations do require that the closing attorney disclose his financial interest in the title insurance agency in writing at the closing.

While most people have heard the term “title insurance,” most people are somewhat uncertain as to its exact function in the real estate closing process.  Until the late 1970's or early 1980's, title insurance was uncommon in South Carolina.  Up until that point, lawyers or their staff members did a title examination at the Register of Deeds or Clerk of Court’s Office in the county where the property was located, and the attorneys issued what was called a “title opinion.”  The title opinion disclosed liens such as mortgages, state or federal tax liens, easements, restrictive covenants, judgments or other matters affecting title to the property.  If the attorney made a mistake or missed a title matter which caused either the property owner or the lender a financial loss, the attorney or his or her malpractice insurance would be the source to make the damaged party whole.

The problem with the old system and reliance upon the attorney’s title opinion is that some attorneys and law firms had the financial strength to cover losses, but others did not.  Lenders began to insist upon title insurance to protect their financial interest in loan transactions.  In addition, in the late 70's and early 80's, most individual residential borrowers borrowed money from local financial institutions, primarily savings and loans who got their money to loan from local depositors.  Many of the savings and loans failed in the early 1980's, and the system of mortgage loan financing dramatically changed.  The new system of home financing involves large brokerage companies buying large numbers of mortgages and packaging them as mortgage backed securities in which investors buy a small percentage of a large pool of mortgages.  These mortgage pools and investments are all regulated by the federal government, and it became a uniform requirement that there be lender’s title insurance on a loan before it could be bought and put in a mortgage backed security pool of mortgages.

In addition to coverage for the owners of mortgages, there is a second type of title insurance known as “owner’s coverage.”  The purchaser of real estate may acquire owner’s coverage, and this owner’s coverage insures what is called “marketability of title.”  This basically means that if at any time during the owner’s period of ownership of the property, there is a challenge to the owner’s title, or if a lien or claim not disclosed on the policy comes up, then the title insurance company must either repair the title defect, or be liable to the owner or loss of market value as a result of the title defect.  Most all attorneys and realtors recommend that a purchaser of real property acquire owner’s title insurance.  When the purchaser is being required to obtain loan coverage, the additional charge for owner’s coverage is not that great.  Protect yourself by buying owner’s title insurance when you purchase real property.

Subject: York County SC Real Estate Law. Title Insurance. Real Estate Closing.

Disclaimer: This article is for informational purposes, and it should not be relied upon as legal advice.