What is title insurance?
You may purchase a printer for $150.00 from your local electronics store. “Would you like to purchase our protection plan” the clerk asks “it’s only $30.00 for 3 years”. You ponder the offer, contingent upon your risk tolerance you may or may not purchase the protection plan. You question whether or not the plan were less than 20% of the replacement cost of the printer, would you purchase it.. .. 15% ….. 10% ….. 5% or less? Maybe?
You weigh the above scenario on a modest $150.00 purchase. Would you pause to protect the biggest investment in your life?
For most, the purchase of their home is the largest financial investment that they will make. While homeowner’s insurance protects the home from any future events that the policy covers, it does not protect the property from the past. This is where Title Insurance, more specifically an Owner’s Policy, comes into play. Items that could have financial claim against the property, that went undisclosed during the search and examination of the property, include, but are not limited to, unpaid taxes, unreleased mortgage, liens, judgments, fraud, undisclosed heirs or improper title conveyance of past title holders; are covered and protected with an Owner’s Policy. An Owner’s Policy is a one-time cost that is based on the sales price of the property being conveyed. This policy helps provide security and peace of mind for you and your property.
The second type of policy that is issued is known as a Loan Policy. A Loan Policy is almost universally required by lenders to help protect their investment from unfound title errors. The policy typically protects the value of the loan being used for the purchase of the property. A Loan Policy ensures that the loan is a lien that is valid and is typically ensured to take the first lien position. It also ensures that the title agents properly handle the documents and ensure that they are recorded both properly and timely.
Why you need title insurance?
Owning real estate is one of the most precious values of freedom in this country. You want the assurance that the property you are buying will be yours. Other than your mortgage holder, no one else should have any claims or restrictions against your home.
Title insurance is issued after a careful examination of the public records. But even the most thorough search cannot absolutely assure that no title faults are present, despite the knowledge and experience of professional title examiners. In addition to matters shown by public records, other title problems may exist that cannot be disclosed in a search. Title insurance eliminates any risks and losses caused by faults in title from an event that occurred before you owned the property.
Title insurance is different from other types of insurance in that it protects you, the insured, from a loss that may occur from matters or faults from the past. Other types of insurance such as auto, life, or health cover you against losses that may occur in the future. Title insurance does not protect against any future faults, but does protect you from risks or undiscovered interests. Another difference is that you pay a one-time premium for a policy that remains effective until the property is sold to a new owner – even if that doesn’t occur for decades.
What is a Lender's Policy?
A lender’s policy, also known as a loan policy or a mortgage policy, protects the lender against loss due to unknown title defects. It also protects the lender’s interest from certain matters which may exist, but may not be known at the time of the sale.
This policy only protects the lender’s interest. It does not protect the purchaser. That is why a real estate purchaser needs an owner’s policy.
What is an owner's policy?
An owner’s policy protects you, the purchaser, against a loss that may occur from a fault in the ownership or interest you have in the property. You should protect the equity in your new home with a title policy.
What does an owner's policy provide?
Protection from financial loss due to demands that may be charged against the title to your home, up to the cost 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, up to the cost of the policy.
Why the seller needs to provide title insurance?
Any purchaser will need evidence that his investment in your property is free of title defects. The title insurance policy that you provide the purchaser is a guarantee that you are selling a clear title to your real estate, unencumbered by any legal attachments that might limit or jeopardize ownership. It will reassure your purchaser that he or she is protected from any risks or losses and could help you close your deal.
Why the buyer needs title insurance?
Without title insurance, you may not be fully protected against errors in public records, hidden defects not disclosed by the public records, or mistakes in examination of the title. As a result, you may be held fully accountable for any prior liens, judgments or claims brought against your new property. If this should occur, your title policy insures that you will be defended at no cost against all covered claims up to the amount of the policy.
How much does title insurance cost?
The insurance commission approves and controls the premiums for title insurance policies. The premiums are paid only once and the cost depends upon the purchase price of the property and the policy amount must be equal to the purchase price.
What does title insurance protect from?
- Undisclosed heirs
- Forged deeds, mortgages, wills, releases and other documents
- False impersonation of the true land owner
- Deeds by minors
- Documents executed by a revoked or expired Power of Attorney
- False affidavits of death or heirship
- Probate matters
- Deeds and wills by persons of unsound mind
- Conveyances by undisclosed divorced spouses
- Rights of divorced parties
- Deeds by persons falsely representing their marital status
- Adverse possession
- Defective acknowledgements due to improper or expired notarization
- Forfeitures of real property due to criminal acts
- Mistakes and omissions resulting in improper abstracting
- Errors in tax records