Newland's Business Notes

Deeds, Wills, Surveys & Title Insurance – Part II

Volume 10 Issue 1 -- January/February 2006

In the last issue, we looked at a number of basic concepts relating to the ownership of real estate. This time we will consider a number of different aspects of this topic.

Title insurance did not exist for some period of time in many jurisdictions.  Instead of title insurance, an “abstract of title” would be prepared, which is a review of the prior deeds and ownership. This was usually prepared by an attorney who then vouched for the correctness of the title given to a buyer. The lawyer’s promise of good title was the only protection for a purchaser who later discovered that there were problems with the title.

One of the problems with abstracts of title is the possibility of a potential error by the lawyer or other person preparing the abstract.  Should the lawyer die and not have any assets left in this world, a person who has learned that there is a defect in title may not be able to perfect a claim against the lawyer or the estate of the lawyer who prepared the abstract. 

Role of Title Insurance

Today, a more common way of protecting a title is to purchase title insurance, a type of insurance policy which states that the title to the land and the description contained therein is correct.  It assures the buyer and a potential bank lender that the title insurance company will insure against claims regarding ownership of the land.  If title insurance is purchased, it is usually for a specific amount and the purchaser or lender is protected to that extent.  If a problem with the title develops later, the insurance company pays up to the amount covered by the policy.

Often overlooked, particularly in a real estate market such as Northern Virginia today, are increases in the value of the land.  If, for example, title insurance was purchased on a piece of real estate and the insurance provided coverage for $100,000 but the property has appreciated to $500,000, the title insurance company is only obligated to pay up to the insured amount — $100,000 — if there is a defect in title.  In such unusual circumstances it may be wise for the property owner to consider increasing the amount of the title insurance.

Recording Deeds

Deeds are recorded, usually in a county office, run by a public official. The recording of deeds is important because once a deed is recorded, the rest of the world is deemed to have notice of the deed and the ownership rights granted by the deed.

An unrecorded deed may be effective against people who have actual knowledge of the deed, but it may be totally ineffective against everyone else. Suppose Pop Long gives a deed to his farm to his son Shorty, but Shorty never records the deed.  Later, when Pop becomes older and more forgetful, he sells the same property to I. B. Lovely, the young nurse who cares for him.  Because Shorty failed to record his deed, he may be out of luck.

Defects in Deeds

It is often assumed that deeds are correct.  It is little understood, however, that the recorder of deeds does not care how a deed or a property description therein is worded.  The function of the recorder of deeds is to accept and record the document, not to review it and pass judgment upon it unless there is something flagrantly wrong which may be readily detected. 

That means that property descriptions that begin with now-missing henhouses will not be subject to examination until a would-be purchaser arrives and wants title insurance and a survey or a better description of the property.  If there are too many roods or poles, for example, in a deed, a survey will correct that. 

Many sellers of property are reluctant to get a survey because surveys can be quite expensive.  However, in cases where the buyer will not proceed without the survey there is no alternative but to either get the survey or look for a different buyer. 

Even if a modern survey has been done on a property, many things can happen to cause that survey to become inaccurate. For example, as was noted in the last issue, changes in streets and roads frequently result in property being taken from surveyed lots.

We hope that this discussion has been of assistance to you.  If you have further questions, call Newland & Associates.  Although we do not handle routine real estate closings, we do assist clients with tax planning and with estate planning related transfers. 

Copyright 2006

Published by the law firm of Newland & Associates, PLC
9835 Business Way
Manassas, VA 20110
Call us at (703) 330-0000 for a full range of business law and tax-related services.

While designed to be accurate, this publication is not intended to constitute the rendering of legal, accounting, or other professional services or to serve as a substitute for such services.

Redistribution or other commercial use of the material contained in Newland's Business Notes is expressly prohibited without the written permission of Newland & Associates, PLC.

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