We all need to know if anything could compromise our ownership of property we buy. We rely on title companies to affirm that the seller has the rights to sell. To affirm this, the title company in turn relies on a legal expert’s opinion of the integrity of the deed — an opinion of title. This document offers clarity and confidence that the seller has full rights in the property, and the ability to transfer it. Then, the title company can back that guarantee with title insurance.
In this article, we look at these two sets of assurances: the opinion of title and title insurance — and their differences.
What Is an Opinion of Title?
An opinion of title is a statement concerning a property’s ownership, based on a title search. By scouring the title history as chronicled in the county records, the title search verifies that today’s owner has full rights to transfer the parcel to a buyer. With the search completed, a local real estate transactions attorney, or a title company’s attorneys, can produce opinions of title, enabling a title company to create the title report.
The attorney who supervises the title search creates the opinion, setting forth the property’s legal description and current ownership, any issues with the chain of title, and anything that could delay the recording of the property deed in the county.
The structure and detail of the opinion is geared to the type of transaction for which it is requested. Each county has its own style and formatting rules. Counties may offer forms for attorneys to complete. Alternatively, the opinion can be printed on an attorney’s letterhead. Either way, it lays out the significant findings of the title search. These include whether a buyer would take the title subject to restrictions, or if there are existing mortgages, overdue taxes, leases or liens. If a title search uncovers claims or improper deed transfers in the chain of title, these clouds should be cleared before the forthcoming transaction.
Why Get an Opinion of Title?
To protect the integrity of real estate transactions and deter fraud, your county may insist on an opinion of title drafted by an attorney who is licensed in the state. The title opinion may be needed and requested in a range of situations, including these:
- Freddie Mac will back a mortgage loan based on an opinion of title alone, rather than requiring a title insurance policy.
Note: In some deed transfers, neither an opinion of title nor title insurance is sought. For example, this can be the case in a property transfer after a death, under the auspices of the probate court.
If the Title Opinion Looks Good, Why Get Title Insurance?
An attorney’s opinion reflects the status of a property based on information in the public records. It does not explore the many kinds of undisclosed title defects that might lurk in chains of ownership.
In contrast, a title insurance policy is assurance against those unknown title defects and unrecorded easements. Title insurance also covers fraud and forgery, defective deeds, recording errors, and other possible title problems.
Another difference is the buyer’s recourse for reliance on these different kinds of assurances if something goes wrong. Consider the scenario where an attorney relied on a hasty search, and erroneously stated the title was free and clear of recorded claims. In this case, an owner who relied on the faulty title opinion would have to ask a court to determine that the attorney was negligent.
In contrast, the title company issuing an insurance policy, for a one-time fee, already agrees to help the owner resolve covered title defects, for as long as the owner has the house. Title insurance is commonly purchased with a home, except in Iowa, which offers a state-backed title guarantee.
After Paying for a Lender’s Title Policy, Why Get an Owner’s Policy?
If you’re getting a mortgage, a lender often insists that you purchase a title policy to cover the lender’s losses if property disputes arise at some point during the term of the mortgage. The lender wants to be sure that the mortgage is repaid, even if something happens to the underlying asset.
If someone else turns up later with a valid claim to the home’s title, the lender’s insurance policy alleviates the company’s risk — but it doesn’t protect the buyer’s home equity. This is why many buyers take the further, optional step of purchasing owner’s title insurance. Even if the buyer loses the house, an owner’s title policy can cover the legal bills related to defending the buyer’s legal rights, or help with the purchase of a replacement property.
Some issues are unusually complicated, such as a prior transfer by an incapacitated owner or unfair dealings under a power of attorney. Some problems require extensions and additions to the standard policy, while others are covered in the basic policy. (See a title company’s example of basic and extended coverage here). Obviously, it’s worthwhile to read the fine print to know what’s covered by a policy, and how coverage would work in the most difficult scenarios.
Consider getting an owner’s policy if the home has a long history of changing hands. Indeed, even if you’re purchasing a newly built home, assume that the land underneath the home may have a complicated history — and understand how you can guard your investment.
What If an Issue Does Arise?
Imagine relaxing in the home you bought a few weeks ago. You’re sitting by your beautiful fireplace when you hear a knock on your door. To your horror, the visitor is an officer serving you with a lawsuit — claiming you’re not the rightful homeowner.
You call the title company that handled your closing. You’re told the company will provide you with legal assistance. Back in the chain of title, it turns out, is an owner who passed away with a child and apparently without a will. The deceased had recently married, and the new spouse managed to take possession of the home, then immediately sold it. It’s changed hands several times since. You consider how quickly after your purchase the prior owner’s adult child challenged you. Who else in the chain of title holders knew of this person’s claim?
If you have an owner’s title insurance policy, it should cover your costs if a missing heir wants the home or monetary compensation for it. But there could be further issues here, if the title company knew or should have known about the adult child’s competing claim and insured the house anyway. If the opinion of title that missed the issue was produced by the title company in-house, then the wrong occurred at multiple points, by multiple people. This is the time to hire your own real estate lawyer.
This hypothetical problem also illustrates one reason a buyer might hire a separate real estate attorney to draft the opinion of title — if only to have an extra set of eyes to find evidence of legal claims in the public records.
Note: Deliberate concealment of title issues is a breach of the seller’s disclosure statement. If you were knowingly misled by the seller or a real estate agent, these people may be liable for failing to follow disclosure requirements, or for fraud. Consult with a lawyer experienced in real estate transactions quickly to learn how disclosure rules could apply in a specific case. State statutes of limitations apply to disclosure provisions.
Protect Your Investment. Tap Local Expertise.
Buyers should have potential claims against their properties on their radar. Issues can be found and possibly remedied before a purchase in light of an attorney’s opinion of title. After purchase, title insurance offers protections for unrecorded claims and problems that could not be detected before the transaction.
A reputable, local real estate lawyer can address the buyer’s questions about potential claims and burdens on a property. Complementing that role, a local real estate transactions attorney can counsel the buyer on interactions with brokers and parties with duties to disclose. An attorney’s role in the transaction continues, if needed, after closing. Neither insurance nor an attorney’s opinion of title replace an attorney-client relationship through a real estate transaction.
Photo credit: Mari Helin via Unsplash.