YOU ASK:

What is an abstract of title policy?

WE ANSWER:

In other terms, this is also called a land title policy.

The abstract of title is a list of all the previous owners of the title. The abstract of title policy protects the insured against any defects in the title.

A thorough search of the abstract of title, and all related documents, should be able to reveal if there are problems in the title. What happens is that when you, as the prospective buyer, orders a title search and a title policy, the insurance company will assign someone to perform the title search.

When the title search is done, the title searcher will submit a title opinion. The opinion will outline whatever clouds or problems are found in the title - clouds that may one day crop up when someone claims the ownership of the property.

When these are cleared, the insurance company will issue the abstract of title policy.

You may ask why you still need the insurance even when the clouds are cleared up. This is similar to fire insurance, where the insurance company will refuse to issue a fire insurance policy to you when your house is in the process of burning. Instead, it will issue the policy before such hazards happen and then help ensure that these hazards do not happen.

Even when the title is cleared of all known clouds, you still need title insurance because there may still be problems that can come up to put your ownership of the property in jeopardy.

The insurance will cover against losses you incur because of defects in the title. These can include:

  • Indemnity up to the purchase price of the house if you lose the case when someone claims ownership of the property
  • Legal fees you need to pay when you are mounting a defense against such claims
  • Payment for structural damage if you are forced to tear down a portion of your home that is found to have been encroaching in another owner's property
  • The loss of value to the house because of the lack of access rights or because of the exercise of the rights to extract water, minerals or any items, particularly if these are within your property
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