What is Title Insurance?
The title insurance industry has been protecting the American dream of homeownership for more than 125 years. Real property is the nation’s largest asset. The behind-the-scenes work of title companies ensures the quick and secure transfer of land, fostering lender and consumer confidence in their real estate investments.
The objective of title insurance remains the same as it has always been – helping the parties in real estate transactions to determine their rights and interests, and assuring that land transfer is expeditious and secure. Protecting the parties involved in real estate transactions is the reason the title insurance product was developed.
In this country, matters affecting ownership and other real estate interests are entered in public records. Before a transaction is completed, a title search of the public records is made in an effort to locate potential problems so that they can be rectified and the transfer can proceed.
While most problems can be located in a title search by skilled professionals, there can be hidden hazards that even the most thorough search will not reveal. Examples include forgeries in the chain of title, a claim by a previously undisclosed relative of a former owner, or a mistake in the records.
Liens, easements, rights-of-way, life estates, air and subsurface rights, and future interests are also found in a title search. Title insurance is substantially different than other types of insurance coverage, which can often lead to a misunderstanding of the product. Title insurance emphasizes risk prevention rather than risk assumption. This emphasis on risk prevention is a labor intensive and costly component of doing business, but the coverage offers the best possible opportunity for avoiding claims and losses in real estate transactions.
The Title Search
After your sales contract has been accepted, a title professional will search the public records to look for any defects with the home’s title. Thissearch typically involves a reviewof land records going back many years. More than 1/3 of all title searches reveal a title problem that title professionals fix before you go to closing. For instance,a previous owner may have had minor construction done on the property, but never fully paid the contractor. Or the previous owner may have failed to pay local or state taxes Title professionals seek to resolve problems like these before you go to closing.
Types of Title Insurance Policies
There are twobasic types of title insurance policies. Alender’s policy, usually based on the dollar amount of the loan, protects only the lender’s interests in the property should a problem with the title arise. Similarly, an owner’s policy, usually based on the home’s total purchase price, protects only the homebuyer’s interests in the property should a problem with the title arise. An owner’s policy will provide protection against ownership challenges, errors or omissions in deeds, mistakes in examining records, missed liens, forgery and undisclosed heirs, among other things.
The Owner’s Title Policy
Sometimes clouds on title result from matters that could not be found in the public records or are not fully considered in the title search process. To help protect you in these events, it is recommended that you obtain an Owner’s Policy of Title Insurance to insure you against the most unforeseen problems. Owner’s Title Insurance, called an Owner’s Policy, is usually issued in the amount of the real estate purchase. It is purchased for a one-time fee at closing and lasts for as long as you or your heirs have an interest in the property. Only an Owner’s Policy fully protects the buyer should a covered title problem arise with the title that was not listed as an exception during the titlesearch.
Possible hidden title problems can include:
- Errors or omissions in deeds
- Mistakes in examining records
- Undisclosed heirs
An Owner’s Policy provides peace of mind and an assurance that your title company will stand behind you – monetarily and with legal defense if needed- if a covered title problem arises after you buy your home. The bottom line is that your title company will be there to help pay valid claims and cover the costs of defending an attack on your title. Receiving an Owner’s Policy isn’t always an automatic part of the closing process, and ispaid for by different people indifferent parts of thecountry. Be sure you request an Owner’s Policy and ask how it is paid for whereyou live. Nomatter who pays for the Owner’s Policy, the fee is a one-time fee paid at closing. The Owner’s Policy protectsyou foras long as you or your heirs have an interest in the property.
You also have the option of purchasing a policy with expanded coverage. It’s called the Homeowner’s Policy and it covers more things than the Owner’s Policy.
The Loan Policy
There are twotypes of title insurance: Owner’s titleinsurance, as mentioned above, and Lenders title insurance, also called a Loan Policy. Most lenders usually require a Loan Policy when they issue you a loan. The Loan Policy is usually based on the dollar amount of your loan.It only protects the lender’s interests in the property should a problem with the title arise. It does not
protect the buyer. The policy amount decreases each year and eventually disappears as the loan is paid off.