When purchasing a piece of rural land, should you buy title insurance? My answer to that is ALWAYS “Yes”. You may not be familiar with title insurance and what this type of insurance policy covers, so we will hit the high points of title insurance for rural land purchases. Disclaimer: I am not an attorney, and this is my personal opinion, not legal advice. I am trying to provide practical information from a real estate broker’s perspective. All of the information in this article is provided from sources that I believe to be reliable, such as title companies themselves.
“Title” is the legal record of ownership of the rights associated with a particular piece of real estate. Once an agreement is reached between Buyer and Seller, and the contract is signed, then the contract is provided to a closing attorney or title company. The closing attorney will either perform, or engage an abstractor, to search the history of the legal record for the subject property. In my part of Alabama, the local custom is for the title search to go back 60 – 65 years to make sure there are no problems in the chain of title. The title search will often include documents such as: deeds, death certificates, Power of Attorney, mineral rights, timber deeds, or recorded easements. A title abstract is different from a title search, in that an abstract takes into account everything pertaining to a property from the time of the original patent from the state to present day. Abstracts can be much more expensive than a title search. Once the title search is completed, the attorney will review the documentation and will issue either a title opinion or title binder. The opinion or binder will set out for the client the findings of the title search, and will identify any issues of record that may be of note. The attorney will then submit the documentation to the title company for underwriting review and issuance of a policy. Typically a title insurance policy is issued for the purchase price of the property.
The first title company was founded in Philadelphia, Pennsylvania in 1876, as a result of the landmark case of Watson v. Muirhead in 1868. The buyer, Watson, purchased a property in good faith, but the title search performed by Muirhead left Watson in jeopardy with lien holders on the property he was purchasing. Watson sued Muirhead, but the courts ruled that Muirhead was innocent. This case revealed that there was risk involved with a real estate purchase, even if all parties acted in good faith.
Most lenders will require a Buyer to purchase a mortgagees’ policy which protects the lender from defects in a title. This policy may or may not protect the Buyer, so it is often recommended for the buyer to purchase an owner’s title policy which directly protects the new owner. Title insurance is a one-time purchase that protects the Buyer from what may have happened in the history of the property. Should some claim arise that was before the policy was issued, title insurance should protect the new owner for up to the face value of the policy. The price of a title policy is directly tied to the face value of the policy. Many title companies will have a title insurance calculator available to estimate what your policy will cost. In my area, most of the title companies are members of ALTA, American Land Title Association. ALTA has strict guidelines and best practices to ensure the title search and policy issuance is done to the highest standard. They have a feature that allows you to search for through the ALTA registry for their members in your area.
Several years ago I represented a seller in the sale of a property in a rural county in Alabama’s Black Belt. My client learned that he was a child born out of wedlock to a man that owned about 120 acres. When my client asserted his claim to the property to the son who had inherited the land after his father passed away, the other son denied my client’s claim to the property. My client successfully petitioned the court to exhume the body of the deceased father, so that my client could prove paternity. The court granted his request, the father’s body was exhumed, and my client’s contention was proven to be true. He was awarded 1/2 interest in the property. The son that had owned the property before had a title insurance policy, and he was awarded payment for the loss of 1/2 of the interest in the land. This is a highly unusual case, but it illustrates well the types of issues that may arise that necessitate title insurance.
Title insurance is a common sense purchase when buying a piece of rural land. You can often obtain an owner’s title policy for about 0.5% to 1% of the purchase price of the property, and be protected from anything in the history of the title. To me this is a wise investment and provides the peace of mind to allow you to use the property without worry. My hope is that this article has been helpful to explain the concept of title insurance, a primer on how it works, and why you need it. For more specific questions about your particular situation, consult your local attorney or title company.
Written by: Jonathan Goode is an Accredited Land Consultant (ALC) and licensed land broker in Alabama and Mississippi. He co-hosts the weekly radio program, The Land Show, that covers many of these topics for people interested in buying or selling land in Alabama.