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What is Title Insurance?

25 February 2003

Title insurance is a contract between a title company and an insured party. The title company undertakes to defend the title or pay any losses which the insured party may suffer if the title is challenged or found to be defective.

A number of policies exist, of which the following three are the most popular:
1) Owners Title Policy:
Protects the owner of the property while he is the owner and after the property is sold. It is issued for the amount of the current sales price, and if there is no sale, the policy must be issued for the property's fair market value.
2) Mortgagee Title Policy:
Protects the lender from loss if it is discovered that his lien is invalid or is inferior to another lien not shown as an exception to coverage on the policy. This policy is issued in an amount equal to the current outstanding loan balance.
3) Leasehold Title Policy:
Insures a tenant against any losses he may suffer if the landlord does not own the property. The policy covers any rentals payable under the lease contract, the value of the existing land and any improvements made, or costs incurred in the contemplation of making them.

Title insurance is different to other insurance as it insures against events which have happened in the past. Before a company issues a title policy, it will thoroughly search county property records. It searches references to deeds, mortgages, liens, deaths and anything that could affect the title to the property. Once completed the company will issue a policy and stipulate what exceptions will be taken in the policy. If a defect is found, it may be corrected depending on its nature.

Generally an attorney of the seller's choice is involved. Correction methods include affidavits, correction deeds and other documents, and court action may also be necessary.

A title company does not cure bad titles, and the documents which it requires are not meant to cure a title defect. All they do is satisfy the title company that the property can be insured. Correction methods include affidavits, and the correction of deeds and other documents. Court action may be necessary. Often the commitment for title insurance will list what items or actions would be necessary to remove the matter in question as an exception to coverage.

Even though an attorney has carefully searched the records, a title may still be defective for a number of reasons such as: Forgeries, frauds, false representation, mistakes in descriptions, undisclosed heirs, clerical errors and illegal trusts. At the moment the responsibility for the legal validity of titles in South Africa is divided between the Deeds Office and the conveyancing profession, which virtually guarantees security of title. We have no need for title insurance.

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