Indiana Department of Insurance: Title Division

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IDOI > Title Division Title Division

What is title?
What is a title defect or encumbrance?
Why is transferring title to real estate different from other ownership transfers, such as the transfer of title to a car?
What is title insurance?
Why consider purchasing title insurance?
What is a title search?
What does title insurance cover?
Where can I get title insurance?
How do I make a title insurance claim?

What is title?

Title is a collective term that encompasses your legal rights to own, possess, use, control or dispose of real property - land. Title takes into account all previous land ownership, uses and transfers of land use and ownership. In order to legally transfer real estate property, you must perform a title search to determine the title is clear or free of defects or inappropriate encumbrances.

What is a title defect or encumbrance?

A title defect is a problem or omission associated with the title that impairs your ownership rights to the property. Possible title defects include errors or omissions in the public records, forgery, confusion caused by similar or identical names, signatures of minors, mental incompetence, fraud, incorrect marital status, etc.

For example, a title defect could be an undisclosed heir of a previous owner suddenly appearing to make an ownership claim on your land.

An encumbrance is a claim made upon the land by someone other than an alleged landowner. For instance, your local power company may have an easement - a limited right to use your property - to install electrical power lines to serve your house or your neighbor's.

While a utility easement is often an appropriate encumbrance, other encumbrances may not be acceptable. If you are borrowing money to purchase your house, your lender will want assurance that no one else has a claim against your house - the collateral for your loan. Therefore, your lender will require clear title - title free of any outstanding defect or unacceptable encumbrance - before approving the loan.

Why is transferring title to real estate different from other ownership transfers, such as the transfer of title to a car?

Land is permanent, although land usage can change over time. A landowner can transfer various rights from the title, such as mineral, water or utility rights while still maintaining title to the property. If you are considering a purchase of vacant land, for example, you should consider its history to determine possible unacceptable prior usage (i.e., landfill, pollution, etc.). You and your lender should search the title for any defects or unacceptable encumbrances.

What is title insurance?

Title insurance is a contractual obligation between you (and/or/your lender) and the title insurance company, wherein the title insurer, in exchange for a premium payment, provides protection (effective as of the date the title insurer issues the policy) against future losses that might result from a variety of possible title defects or encumbrances.

Why consider purchasing title insurance?

Actually, there are two types of title insurance policies to consider- a lender's policy (also known as a "loan" policy) and an owner's policy.

A lender's policy protects the lender's investment by paying the mortgage in the event that a title defect voids the owner/buyer's title to the property. Typically, a lender's policy does not represent the full property value and the amount of policy protection decreases as the mortgage balance decreases over the life of the loan and terminates when you pay off the mortgage.

An owner's policy protects the landowner/homeowner against the specific types of claims listed in the policy, usually purchased to cover the full property value. While lenders generally require a lender's policy as part of the real estate transaction, an owner's policy is usually optional. An owner's policy protects against any title loss covered by the terms of the policy, which insures the value of the property and lasts as long as you or your heirs retain an ownership interest in the property.

In addition to title loss coverage under a lender or owner policy, a title insurer must also pay for any and all costs associated with defense against title challenges and, if unsuccessful, the title insurer must also pay for any reduction in land value as result. You pay for an owner's policy only once, at the close of escrow – there are no continuing monthly premiums.

What is a title search?

The title insurer conducts a detailed examination of the historical, public records concerning the property. These records include deeds, court records, property and name indexes and many other public documents.

The purpose of the search is to verify the seller's right to transfer property ownership and to discover any defects or encumbrances on the title. A title search should show all title defects and encumbrances as well as judgments, liens and other restrictions (i.e., unpaid taxes, unsatisfied mortgages, judgments against the seller, land-use restrictions, etc.).

Remember, the seller's title policy does not protect you as a buyer. Any title defects could have begun during the seller's ownership and a new title policy will protect your ownership rights when you acquire the property.

What does title insurance cover?

Title insurance protects you and/or your lender from losses resulting from claims against your ownership of real estate. It is unique because it provides coverage for problems or "hidden risks" (errors, forgeries, unpaid taxes, etc.) that possibly occurred before you took title to the property, yet can jeopardize your ownership rights. Title insurance coverage includes:

Protection from financial loss (up to the face amount of the policy) due to covered claims against your title;
Payment of legal costs to defend against covered claims;
Payment of successful claims against your title (up to the face amount of the policy).
Read your title insurance policy carefully and note possible exclusions and exceptions, which may include:
An unrecorded title defect you knew about;
Condemned land;
Building and zoning ordinance violations;
Payments required (except for legal access rights) because your deed failed to provide rights of use to adjacent land, streets, alleys or waterways;
Conveyance of title irregularities arising from a deceased person's estate, a bankruptcy estate or trust;
Restrictive covenants limiting your use of the property;
Discrepancies, conflicts or shortages in area, boundary lines, encroachments, protrusions or overlapping improvements;
Right of usage claims arising if your property is on or near a body of water, river or stream; or,
Renter or adverse possession claims from "parties in possession" of all or a portion of your property.

Where can I get title insurance?

You can obtain title insurance from any licensed title insurance company or its agents operating in Indiana. Competing title insurers offer different services, costs and fees for title services and rates may vary between companies. By law, real estate professionals cannot dictate which title insurer (or title agency) you must use – so, shop and compare: the choice of title insurers is yours.

How do I make a title insurance claim?

As soon as you discover any title-related problem that could impair your ownership rights, contact the title insurance company listed on your owner's title insurance policy, and have your policy number available.

You should make claims in writing and include copies of all relevant documents, such as payment demands and correspondence relating to the title dispute or claim. Keep copies of everything for your own personal records. The title insurer should promptly acknowledge receipt of your claim, and you should expect the title insurance company to accept or deny your claim in a reasonable amount of time.

IDOI regulates title insurance companies and title insurance agencies authorized to do business in Indiana. You can file a complaint with us if you feel a title insurer or agency has acted in an illegal or inappropriate manner.

File a Complaint

Title Insurance Shopping Tips

Buyers should insure for the full purchase price of the property; the lender needs a policy only for the amount of the loan.
Local practice (not the law) determines who pays the premiums, and sellers and buyers can negotiate the payments. Your title agent can advise you who normally pays the various premiums in your area.
Make sure the policy's effective date matches the actual closing date of the escrow.
Verify that the policy describes all of the property and all of the interests you are acquiring in the transaction.
Always ask your escrow or title officer about possible discounts for first time buyers and for other possible discounts with special circumstances.
Insurers providing both owner's and lender's policies in the same transaction may offer concurrent or reduced rates, sometimes called simultaneous issues rates.
Refinancing discounts and short-term financing rates may be available.
Title companies also handle property closings and hold earnest money in a trust account until a purchase is complete.
You may choose any title insurance company you want.
You do not have to use the title insurance company your real estate agent or lender may select or recommend. The Lender has the right to veto the title insurance company choice but not the Agency. Some Agencies represent more than one title insurance company.

U.S. Housing and Urban Development

Most title insurance transactions are governed by the federal Real Estate Settlement Procedures Act (RESPA). View the Real Estate Settlement Procedures Act: http://www.hud.gov/offices/hsg/ramh/res/respa_hm.cfm

Indiana Department of Insurance FAQs for Industry regarding the new RESPA Rule