What is Title Insurance in Real Estate?
When you buy a home, you have a title to the property. This generally means you receive full legal ownership. Sometimes, there is a hidden mistake in a prior deed, will, or mortgage. This may give someone else a valid legal claim against your property!
For new home-buyers, title insurance protects against loss if there is a defect in the title. It offers you information on the status of the title to land. This is before you buy or refinance. It protects against title claims that may affect the title after you buy. Having title insurance can save you money, time, trouble, even your home!
HOW DOES TITLE INSURANCE WORK?
Title companies find and fix problems with the title in 25% of transactions. This is usually without the borrower or lender even knowing it! Also, title companies pay millions of dollars each year in claims. Title insurance provides significant value to lenders and homeowners.
Before closing, Crossland Title searches the public records for all matters affecting title. The search entails examining the records in offices. Offices of the Register of Deeds, Clerk of Courts, and municipal and county officials. These records include recorded documents. They also include judgments, liens, taxes, street easements, sewer assessments, and special taxes. These could affect property ownership.
Through careful examination of these records, we determine who owns the property.
This also determines what interests may already exist in that property. This process, called a title search, provides early warnings of title flaws. Flaws that must deal with before the property sells or refinances.
In transactions with title insurance, the title company determines insurability of the title. This is part of the search process. This leads to the issuance of a title policy. Policies which ensure the existence or non-existence of rights to the property.
The title company will defend the title and will pay losses within the coverage of the policy if they occur. This is at the company’s own expense.
HOW DOES TITLE INSURANCE DIFFER FROM OTHER TYPES OF INSURANCE?
Title insurance is different from other types of insurance coverage. Title insurance emphasizes risk prevention. Prevention rather than risk assumption. As a result, the coverage offers the best possible opportunity to avoid claims and losses in real estate transactions.
There is an important corrective work that title professionals perform. It is rare for lenders or homeowners to suffer a loss under their title insurance policy.
The majority of the title insurance premium goes toward exhaustive research. Also, due diligence work is by Crossland Title upfront. A small percentage goes toward the payment of claims.
Title insurance charges only once at closing. Other forms of insurance require monthly or quarterly payments.
TYPES OF TITLE INSURANCE
The Lender’s Policy
There are two types of title insurance. Lender’s title insurance and Owner’s title insurance. Most lenders require a loan policy when they issue you a loan. The loan policy is usually based on the dollar amount of your loan. It protects their investment and protects against loss should a title problem arise. The policy amount decreases each year and decreases as the loan pays off.
Lender’s title insurance only protects the lender. It does not protect the owner. (FAQ – Doesn’t the lender’s title insurance protect the homeowner?) No. A lender’s policy protects the lender’s interest in the property if a problem arise. It does not cover the owner’s equity in the property. It will not pay the homeowner’s legal expenses if there’s a title problem. Only an owner’s title insurance policy will protect the homeowner.
The Owner’s Policy
Owner’s title insurance is usually issued for the amount of the real estate purchase. You pay a one-time fee at closing and lasts as long as you or your heirs have an interest in the property. This may be even after you have sold the property. Only an owner’s title insurance policy protects the homeowner. It protects should a title problem arise that was not uncovered during the title search. An owner’s policy can also protect you by paying for any legal fees involved in defending a claim to your title.
What does an owner’s policy provide?
It provides protection. Protection from financial loss due to claims against the title to your home. This is up to the face amount of the title policy. Payment of legal costs if the title insurer has to defend your title against a covered claim. Payment of successful claims against the title to your home covered by the policy. This is up to the face amount of the policy.
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