Why do I need title insurance?
Title insurance is an insurance policy or contract issued by a title company it protects you, the purchaser or owner, against a loss that may arise by reason of a defect in your ownership or an interest you have in real property.
What is a Title Search?
A title search is a search of the public records to uncover information about the subject property. This is the first thing done by a title company in the process of issuing a title policy in order to eliminate the risks caused by defective titles.
What kinds of defects does title insurance protect you from?
It protects you against loss due to title defects, liens, or other similar matters. Title insurance protects you and the lender from the possibility that your seller doesn’t — or previous sellers didn’t — have free and clear ownership of the house and property and, therefore, can’t rightfully transfer full ownership to you. Even though the chance of calling on the insurance for coverage is relatively low, the value on what you stand to lose if you go without coverage is high — you could, in fact, lose the house itself. The title company will defend you in court if there is a claim against your property, and will pay for covered losses.
How long does it last?
A loan policy lasts until the loan is paid off. An owner’s policy lasts as long as you or your heirs own the land. It also may provide warrantor’s coverage after you no longer own the property, depending on your policy provisions. Policy language has changed over time, so read the continuation of coverage provisions in your policy carefully to determine coverage terms.
Thus, title insurance serves a very valuable function in the real estate industry, because it
establishes some measure of order and stability for the conduct of real estate transactions. If
these protections were not in place, and all the possible disruptions were allowed to happen
continuously, there would never be any certainty whatsoever in real estate transactions, and no buyers would ever have the confidence to make purchases.
Is it like homeowners insurance?
No, title insurance is different from other types of insurance. It does not insure against fire, flood, theft, or any other type of property damage or loss. It protects against losses from ownership problems that arose before you bought the property, but were not known at the time you bought the property. It does not guarantee that you will be able to sell your property, or borrow money on it.
What is a Commitment for Title Insurance?
A Commitment for Title Insurance is issued once the title search is complete describing everything that was uncovered during the search. The commitment is also a binder promising to issue a title policy once the requirements laid out in the commitment are met. The requirements may include provisions such as recording a properly executed deed from the current owner and payoff and recording the satisfaction of the current mortgage.
What is a Policy of Title Insurance?
The policy of title insurance is issued after all required documents have been recorded in the county courthouse. The policy guarantees the new owner that all requirements in the commitment have been met. It also guarantees there are no ‘hidden’ encumbrances on the title. The holder of the policy is insured that there are no recorded liens or encumbrances on the property unless otherwise stated in the exceptions to the policy. There are two types of title insurance policies. The Loan policy insures the lender while an Owner’s policy insures the purchaser.
What is a Loan Policy of Title Insurance?
The loan policy of title insurance is issued to the lender in a property transaction. This policy assures the quality of the title which the purchaser pledges as security for the loan. The loan policy protects the lender against loss due to defective titles. The loan policy does not protect the purchaser from title defects. The purchaser insures his interest through an Owner’s Policy of Insurance.
What is an Owner’s Policy of Title Insurance?
The owner’s policy of title insurance is issued to the purchaser in a property transaction. This policy is not required by lenders but gives you the purchaser the same guarantees given the lender through the loan policy. Is this important? What if a previously uncovered matter arises affecting the past ownership of your property? The title insurance company will only defend the interest of the lender if you are not covered. Your legal expenses to defend your claim will be your responsibility. In case of a loss, the title insurance company will cover the loss to the lender. The uninsured owner is out his down payment, any accumulated equity, his home and property, and he is still responsible for the unpaid balance of the loan. This is why you need an owner’s policy which can be issued at the same time as the loan policy for a small additional fee.
How can there be title defects if a loan policy has already been issued?
Title insurance is only issued after a careful examination of public records. However, even the most thorough of searches may not uncover all title defects. In addition to defects present in the public records, other problems may exist which cannot be disclosed by a search of the public records. These defects are called hidden risks and include such things as forged deeds and misinterpreted wills.
What hidden risks does title insurance protect against?
Here are some of the hidden risks that can cause an encumbrance on your title:
• Forged deeds, releases or wills
• False impersonation of the true owner of the property
• Liens for unpaid property, income, inheritance or gift taxes
• Undisclosed or missing heirs
• Instruments executed under invalid power of attorney
• Mistakes in recording documents
• Misinterpretation of wills
• Deeds by persons of unsound mind
• Deeds by minors
• Deeds by supposedly single persons who are in fact married
What protection does title insurance provide against defects and hidden risks?
Title insurance will provide for defending against any lawsuit against your insured title and will either clear up the title problems or pay the insured’s loss. An owner’s title insurance policy protects you for as long as you or your heirs retain the property.