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Everything You Need To Know About Title Insurance

What Is Title Insurance?

Title insurance operates as a one-time closing cost premium. It protects homeowners and lenders against possible legal, financial, and ownership disputes that could arise from undiscovered or pre-existing issues like forged deeds, undisclosed heirs or liens. A title insurance agent provides the necessary paperwork and ensures the legal transfer of the title between the current owner and the new owner. There are two types of title insurance policies. Standard owner's policy and enhanced owner's policy. Both are explained in detail below.

How Does title insurance work?

Step 1

Purchase Agreement Is Signed

Once buyer and seller sign the contract, a title company (or real estate attorney, depending on the state) is selected. Often times the insurance company is chosen by the buyer, but sometimes it's negotiated.

Step 2

Title Search Begins

The title company digs into public records to trace the property’s ownership history. They’re looking for things like liens (mortgages, taxes, judgments), ownership disputes, recording errors, easements or use restrictions, missing heirs or fraud issues

Step 3

Title Commitment (Preliminary Title Report)

The title company issues a title commitment, which has three key parts. Schedule A the basic info (buyer, seller, price, property description). Schedule B-I the items that must be cleared before closing (payoffs, releases). Schedule B-II the exceptions that will remain (easements, HOA rules, etc.)

Step 4

Title Issues Are Resolved

If problems show up the seller pays off liens, errors are corrected, missing documents are recorded, legal fixes are made if needed. No policy is issued until required issues are cleared.

Step 5

Title Insurance Policies Are Ordered

There are usually two policies. Lender’s policy protects the mortgage lender (required for most loans). Owner’s policy protects the buyer’s ownership interest (optional but strongly recommended). These are one-time premium, paid at closing.

Step 6

Closing Takes Place

At closing, funds are transferred, deed is signed, title insurance premium are paid. Finally the title company records the deed and mortgage with the county and ownership officially changes hands.

Why Do You Need Title Insurance?

Title defects can become a problem for a home owner if not handled correctly. Title insurance is the "insurance' that if these defects were to present themselves, the home owner is covered. Below are some of the most common title defects in New Jersey real estate.

  • Municipal Tax Liens and Assessments

    New Jersey property taxes are among the highest in the country, and unpaid taxes become a "super-priority" lien that can lead to a tax sale foreclosure. A title search must verify that all quarterly taxes are current and that there are no "Added or Omitted" assessments due to recent improvements that haven't yet been billed.

  • Judgment Liens and Name Confusion

    In New Jersey, a judgment docketed in the Superior Court in Trenton attaches as a lien to all real estate owned by the debtor in the state. Because searches are conducted by name, title agents often find judgments against individuals with similar names to the seller. These "name search" hits must be cleared by having the seller sign an affidavit affirming they are not the person named in the judgment.

  • Boundary Disputes and Encroachments

    Older New Jersey towns often have unclear property lines, overlapping surveys, or structures built across property boundaries. A survey is usually required to determine if a neighbor's fence, shed, or driveway is encroaching on the subject property. These disputes can sometimes require a "Quiet Title Action" to obtain a court order confirming the correct boundary lines.

  • Open Mortgages and Defective Deeds

    "Orphan" mortgages (those that were paid off years ago but never formally discharged by the bank) are a frequent headache for title officers. Additionally, deeds that were missing a spouse's signature, had an incorrect legal description, or were improperly notarized can break the "chain of title," requiring corrective documents from prior owners.

The Two Types Of Title Insurance Policies

Standard Owner's Policy

The Standard Policy provides fundamental protection against common risks associated with a property's history. These risks are generally those that existed prior to the date the policy was issued and were undiscovered during the title search.

Enhanced Owner's Policy

The Enhanced Policy provides a broader "shield" by covering both historical risks and certain future risks that may arise after the closing. In New Jersey, the premium for an Enhanced Policy is typically 120% of the Standard Policy premium.

Still Have Questions?

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