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Louisiana real estate law:
Title insurance and opinions

We are often asked whether it is necessary to get a title opinion before buying a piece of real estate. Sometimes the person is buying the property from a friend and "knows everything must be all right." We answer this question by pointing out that banks and mortgage companies always require that the chain of ownership be examined to insure there are no problems with the title to the property. Whether the friend from whom you are buying the property is reliable is not the question. There are many types of title problems that even the friend may not be aware of. It is even possible for a lien to be placed on the property without the owner's knowledge.

 

Louisiana Title Insurance Act

The issuance of title insurance is controlled by the Louisiana Title Insurance Act (LSA R.S. 22:2092.1 et.seq.).

Among other things, the Act requires that title insurance agents must have errors and omissions policies (malpractice insurance).

 

Related Topics

 Other title problems can result from divorce, inheritance and our forced heirship laws, judgments, federal tax liens, a mistake in a prior sale, and many other problems too numerous to list. The point is, when you buy property, you become liable for any charges or debts recorded not only against the property, but against the person from whom you are buying (but not for more than the value of the property). This is the case because a judgment against an individual operates as a judicial mortgage against all of his real estate.


 

The title opinion is a written statement from an attorney, either on letterhead stationery or a special form, in which the attorney states his opinion as to the merchantability of the title in question. The opinion will briefly describe the property, give the full names of the owners, and list any exceptions that the attorney has discovered to the title. Some exceptions are always listed and are acceptable because they do not really interfere with the merchantability of the title. These types of exceptions include recorded building restrictions, servitudes, and building set-back lines. The attorney might also state that the opinion is based only on what he has found in the public records of the parish in which the property is located and that he is not responsible for surveys, zoning restrictions, inheritance rights of illegit­imate children, and unrecorded liens.

What is the purpose of a title opinion? If the attorney's title opinion says that there are no mortgages or liens and it turns out that there are, he is personally responsible for either fixing the problem at his expense or even for paying the mortgage or judgment. The attorney's malpractice insurance stands behind him to insure that enough funds are available to correct any problem that may occur, even if the problem doesn't arise immediately. The title opinion is, in effect, a low-cost insurance policy that lasts as long as the attorney is legally obligated to fix any problem he overlooked. This obligation is limited to the period of time that an attorney can be sued for malpractice. Since recent changes in the law probably set a maximum three year limit on malpractice, other types of protection are advisable.

Title insurance is also available and will probably be required if you get a first mortgage to buy a house. The title insurance that a bank or mortgage company will require protects only the money lender in the event a title problem occurs, even though you will be required to pay for the premium. Title insurance is usually required in addition to the title opinion because the mortgage may be sold to an investor in some other state who wants to be able to recover against a national insurance company rather than an attorney. Also, title insurance may cover the mortgage holder against title defects that the attorney will not be responsible for, such as unrecorded liens, survey problems, and certain other defects.

 Title insurance for the home owner is also available and can be quite inexpensive if purchased at the same time the mortgage policy is issued. The home owner is given some credit for the money that he has paid for the mortgage holder's policy and basically pays for coverage that he may want above the mortgage amount, plus a small additional premium. Since mortgages are always less that the purchase price, the premium would be for coverage up to the full amount paid for the house. An owner's policy of title insurance can always be purchased at a later date, but the premium will be more expensive and you will probably be required to have the title examined again.		 The cost
Title insurance premiums are set on a sliding scale. The larger the premium, the smaller the charge per thousand dollars of coverage. As a very rough estimate, you can figure around three dollars per thousand dollars of coverage for the average home for the policy you will be required to purchase. If you want coverage for yourself, it might cost an additional dollar or so for each thousand dollars of coverage. Why would you want title insurance for yourself? For the same reasons the mortgage holder does. If there is a serious title problem, it might not be something that the attorney is responsible for. Or, the attorney may not be available or legally liable since these problems usually do not show up until you go to sell the house years later. When you apply for a loan, you can ask for an estimate of how much extra an owner's policy will cost.