Why Title Insurance?
A home is usually the largest single investment any of us will ever make. When you purchase a home, you will purchase several types of insurance coverage to protect your home and personal property. Homeowner's or hazard insurance protects against loss from fire, theft or wind damage. Flood insurance protects against rising water. Title Insurance protects against losses from unknown or undisclosed defects in the past chain of title.
What is Title Insurance?
Title insurance is a contract of indemnity that assures the purchaser of a piece of land that they will actually own the property for which they bargained. It is a unique insurance policy that protects against hidden title hazards that may threaten your financial investment.
The Most Common Types of Insurance
The two most common types of Title Insurance are the Owner's Policy and the Mortgage Policy. An owner's policy protects the buyer of a piece of real property and the mortgage policy protects the lender. Other types of title insurance policies cover other special circumstances.
Is Title Insurance Required by Law?
Title Insurance is not required by law, however, the seller of a piece of property to give assurance to the buyer that the property is marketable usually purchases it. A mortgage policy is normally required by the lender to protect their loan and is purchased by the buyer/borrower.
How are Title Insurance Premiums Determined and How Long Does the Coverage Last?
The premiums for title insurance are determined by the amount and types of coverage provided and are figured on the purchase price or the loan amount, depending on whether it is an owner's policy or a mortgage policy. An owner's policy lasts as long as you or your heirs retain an interest in the property. A mortgage policy lasts until the covered loan (mortgage) is paid in full.
What Does Your Premium Really Pay For?
An important part of title insurance is its emphasis on risk elimination before insuring. Title insuring begins with a search of public land records affecting the real estate concerned. The title agent on behalf of its underwriter to determine whether the property is insurable conducts an examination. The examination of evidence from a search is intended to fully report all "material objections" to the title. Frequently, documents that can present concerns:
- Deeds, wills and trusts that contain improper wording or incorrect names;
- Outstanding mortgages and judgments, or lien against the property because the seller has not paid their taxes;
- Easements that allow construction of a road or utility line;
- Pending legal action against the property that could affect a purchaser;
- Incorrect Notary Acknowledgments.
Hidden Title Hazards
Despite all of the expertise that goes into a title search and examination, hidden hazards can emerge after closing, resulting in unpleasant and costly surprises. Some examples of hazards are:
Title insurance offers financial protection against these and other covered title hazards. The title insurer will pay for defending against an attack on title as insured and will either perfect the title or pay valid claims.
- Forged signatures on a deed, which would mean no transfer of ownership to you;
- Unknown heirs of a previous owner who are claiming ownership of the property;
- Instruments executed under an expired or fabricated power of attorney;
- Mistakes in public records.