Title insurance does not protect a new homeowner from all financial problems associated with homeownership.
Darcia Day, escrow agent for Provo Land Title, said "It's a scary thing not to have title insurance." But, she said, title insurance does not protect a buyer in all instances.One purpose of title insurance is to protect a buyer from the "long-lost son" of the previous owner. A classic example is of a farmer who died, willing the farm to his five children. One child, gone and presumed dead, does not get a cut of the inheritance. The missing heir returns 20 years later to find a subdivision on the family farm. He claims his inheritance - one-fifth of the value of the land. Of course, the land with houses on it has greatly appreciated in value.
Title insurance protects the owners.
The title company searches records to confirm there is a clear title to the property. The insurance policy issued is the guarantee that the title is clear. If it is not, the title insurance pays.
Day said 99 percent of the buyers in Utah County get title insurance. Mortgage companies require title insurance. Day said in Utah the lender's policy is issued at 60 percent of the cost of the owner's policy.
Generally, the lender's coverage is more extensive than the homeowner's coverage, Day said. For example, builder's liens are exempt from coverage in a buyer's policy.
According to Webster's New World Dictionary, a lien is "a legal claim on another's property as security for the payment of a just debt."
Kim Fearneyhough founded a consumer organization, Homeaid, to address problems in homeownership.
Homeaid lobbied the state Legislature for laws to protect a buyer from builder's liens resulting from situations like a general contractor not paying a subcontractor's bills.
"They (a building contractor) cannot close if there is not a clear title," Fearneyhough said, "but after closing a lien is put on." The new owners find themselves with a large bill added on top of the mortgage.
Fearneyhough said Utah lawmakers did pass legislation in 1989 to offer some protection to new homeowners. West America is the first contractor to be prosecuted under the new law. An arraignment is scheduled Thursday in 4th Circuit Court in Orem.
Title insurance does not protect an owner from restrictive covenants and easements, Day said. Restrictive covenants, placed on the property by the developer or previous owner, may place certain restrictions on the use of the property and on home construction. Easements, for example, provide utilities and government entities perpetual access to corridors of land and may restrict some uses of that land. Also, title insurance wouldn't protect a new homeowner if a property line is found to be in error.
Zoning can also limit property uses. For example, zoning in Provo's tree streets limits the renting of basement apartments. Some owners have purchased homes with apartments with the intention of renting the apartments to help make the mortgage payments. Title insurance does not help an owner with that type of problem, Day said.
The final possible problem Day mentioned is outstanding utility bills. Day said outstanding utility bills would not show up on a title search because there is no lien on the property. But, she said, new owners may not be able to have utilities turned on until the overdue bills are paid. She suggested the buyer check with utility companies to be sure there are no large outstanding utility bills.
However, employees of Provo City Power, Utah Power & Light and Mountain Fuel all say they bill only the person contracted to pay the bill and not the property.
"We serve people, not meters," said John Serfustini, spokesman for Utah Power & Light Co. "We don't put liens on houses."
"It is not the house but the person who owes the bill," said Mountain Fuel Public Affairs Officer Susan Glasmann.