How title insurance works in a Georgia real estate transaction

On Behalf of | Apr 4, 2022 | Real Estate Law |

Buying a piece of land in Georgia (or any other state) involves requires a solution to a unique problem: ownership of land is not the same as another asset. The owner cannot take physical possession of the land, and the buyer cannot be certain that the owner has the legal right to transfer possession to the buyer. In modern real estate transactions, this problem is solved by a public recording of land titles and title insurance.

Public recording of land titles

Every state in the Union has a method of has established a public registry of who owns land in the state. These registries keep a written record of all transactions affecting each piece of real estate. These registers make written entries for every sale, mortgage, lien or other transaction affecting ownership of each tract of land. When a parcel is subject to a pending sale agreement, the prospective buyer usually hires an expert, a lawyer or land title company, to search these records to ensure that the seller has the legal right to convey the land subject only to encumbrances that have been disclosed during the sale negotiations. Any unsatisfied mortgage or other lien is usually satisfied at the closing so that the land will pass free and clear of any other encumbrance.

The need for title insurance

Verifying a seller’s ownership of a tract of land can be complex. Mistakes are made – for example, a mortgage lien may not have been properly recorded or the deed from a prior sale may have used the wrong legal description. Lenders that finance real estate sales, especially large commercial sales, use title insurance to protect themselves from financial loss in the event that title to the land being conveyed is somehow defective. Buyers of land can also purchase a title insurance policy that will protect their interest in the event of a defective title. In a residential transaction, the purchaser will often rely on the mortagee’s policy for protection in the event of a defective title.

Virtually every lender will require the purchaser to buy a policy of mortgagee’s title insurance. The price for this policy is stated on the closing statement, and the cost is past along to the buyer. Whether a buyer should rely on the mortgagee’s policy of title insurance should be reviewed with a competent real estate attorney prior to the closing.