What is Title Insurance?
Title insurance is a contractual obligation between a homeowner and/or lender and the title insurance company, wherein the insurer, in exchange for a premium payment, provides protection against future losses that might result from a variety of possible title defects or encumbrances that existed at the time of closing.
Before you purchased your home, it may have gone through several ownership changes, and the land on which it stands went through many more. There may be a weak link at any point in the chain that could emerge to cause trouble. For example, someone along the way may have forged a signature in transferring title. Or there may be unpaid real estate taxes or other liens. Title insurance covers the insured party for any claims and legal fees that arise out of such problems.
When do I purchase Title Insurance?
The title insurance policy is purchased at closing for a one-time premium, based upon the loan amount and/or purchase price. However, the preparation that leads to the title insurance policy being issued begins in the very early stages of the closing process.
What will Title Insurance protect me from?
Some common examples of problems covered by title insurance include:
•Improper execution of documents
•Mistakes in recording of legal documents
•Mistakes in the indexing of legal documents
•Mistakes in legal descriptions of property
•Forgeries and fraud
•Undisclosed or missing heirs
•Unpaid taxes and assessments
•Unpaid judgments and liens
•Unreleased mortgages
•Incorrect interpretation of wills
•Mental incompetence of grantors of property
•Impersonation of the true owners of the land by fraudulent persons
•Fraud in securing essential signatures
•Refusal of lender to provide financing based upon condition of title
•Refusal of potential purchaser to accept title based upon condition of title
If my title has been examined for defects, why do I need Title Insurance?
There are some title defects that cannot be uncovered with even the most thorough search. For example, a search will not uncover that a valid deed was indexed improperly in the land records. Title insurance will protect you from these types of defects.
Do I have to purchase Title Insurance?
Although highly recommended by experts, you do not have to purchase title insurance if the buyer is paying cash for a home. The vast majority of banks and other mortgage lenders, however, require that the borrower obtain a Lender's Policy of Title Insurance equal to the loan amount.
What is the difference between a Lender's Policy and an Owner's Policy?
A lender's policy protects the lender up to the amount of their outstanding debt on a mortgaged property. The value of the policy decreases as the loan principal is paid down and expires when the mortgage is paid in full. An owner's policy is purchased in an amount equal to the purchase price and does not expire when the mortgage loan is paid in full or upon the sale of the property. The owner's policy is there to protect the owner's equity in the property.