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Title Insurance

Overview

Title Insurance is a unique insurance policy that protects purchasers of real estate and mortgage lenders from any potential claims against a property that may result from defective titles, liens and encumbrances. It was developed to assist all parties in the real estate transaction to determine their rights and interests, while ensuring that the transfer of property not only happens smoothly, promptly and securely, but that it is also defect-free.

Title defects can be serious, costly, and time-consuming to resolve. In order to ensure that all potential defects in the transfer of property are found before a transfer is complete, the title company performs a thorough search of public records in order to locate potential problems so they can be addressed prior to the transfer of property.

Most problems or potential title defects are found during that search, but there is always the possibility of hidden hazards that might not show up until the property has been transferred. And that’s where title insurance comes in. It is different from other insurance because it emphasizes risk prevention to avoid hidden claims or defects, which may include a forgery in the chain of title, a claim that is made by a previously unknown relative of a former owner, or a mistake in the records that is not found in the search, among other issues.

Also unlike other insurance, there are no monthly premiums because it is only paid once—upfront at the time of closing. Once a title policy has been issued, if the insured suffers a loss as a result of past events, the title insurance provider is obligated to reimburse the insured for that loss and any related legal expenses, up to the face amount of the policy.

Title Insurance Benefits

The difference

Owners Policy versus Loan or “Lender’s” Policy

There are two types of Title Insurance policies—the Owner’s Policy and the Loan Policy (sometimes referred to as the “Lender’s Policy”). While most Lenders only require a Loan Policy, buyers should always consider purchasing an Owner’s Title Insurance Policy to protect their entire investment. Why? While there is only a small cost differential between an Owner’s policy and a Loan policy, there are significant differences in the level of protection they provide to the insured. A home buyer should always understand the distinction:

Owner's Policy

  • Covers the full purchase price
  • Protects the owner for the full purchase price until the property is transferred. If owner dies, his/her heirs are automatically protected.
  • Covers the owner for any issues or defects in the title that may occur.
  • Protects the owner against title issues, i.e. fraud, forgery, prior liens, lack of access, erroneous legal description, improperly recorded deed, building encroachment on property, old right-of-way, another person claiming stake in the property. All issues could negatively affect owner’s enjoyment of property, as well as his/her ability to refinance, etc.
  • Additional cost for Owner’s policy is a bargain considering the owner’s level of protection.

Loan Policy

  • Only covers the amount of the mortgage
  • Only protects the lender until the mortgage is satisfied. Does not cover the owner for the full purchase price.
  • The lender is not responsible for the owner’s defense and remedy of title defects.
  • The title company pays claim to lender only, while owner’s interest may be left uncovered by policy. Owner is left with no title company backing him/her up or paying for costly research or legal defense.
  • Very little cost differential from Owner’s policy, especially since owner is not covered.