What is Title Insurance?
Title insurance is protection for purchasers and lenders against any property loss or damage due to defects in the title. Defects would include another person claiming ownership in the property, document forgery, fraud, liens, encroachments, and many other issues which would affect having clear title to the property.
Lender’s Title Insurance
There are two types of title insurance policies. The first one is a lender’s title insurance loan policy and is based on the amount of your loan. In most cases, once a lender buys your loan, they will immediately sell it to the secondary market and this can take place before you’ve even made your first payment on your loan. In order for the lender to protect its security interest in your loan, most secondary investors require that the loan has title insurance coverage. This comes by way of the lender’s title insurance loan policy. The lender’s policy expires once the loan has been paid in full and satisfied. You will likely be required to purchase lender’s title insurance each time you refinance or buy a new home.
While most lenders will require a lender’s title insurance policy to be purchased with every loan, a common misconception is that the lender’s title insurance loan policy will also protect the owner of the property against any title issues. The fact is – it doesn’t! In order for an owner to get their own protection, they will need to purchase an owner’s title insurance policy.
Owner’s Title Insurance
The other type of title insurance is called an owner’s title insurance policy. Unlike the lender’s title insurance policy, an owner’s policy protects the owner and is valid for as long as the current owner holds title to the property. Depending on the cost of the home, the price for owner’s title insurance varies, but the purchaser can save some money by purchasing a simultaneous policy (lender’s and owner’s) for the same closing and get a discounted premium on the cost of the owner’s title insurance policy.
Similar to car insurance or home insurance, which protects you if you were to get into a car accident or if your house burned down, title insurance does the same, but it protects your title to your home against any issues that might arise from previous owners or events.
Unlike the other types of insurance, owner’s title insurance is paid in the form of a one-time premium at closing, and protects you against any issues for as long as you own the property. Owner’s coverage is not transferrable if you decide to sell your home to a new owner. The new owner will be given the option to purchase their own policy if they want to be protected and their closing.
Won’t the title search tell me if there are any issues?
While a title search is performed by the attorney and title examiner on each property they close, there are many issues which may arise that cannot be foreseen by the search or the attorney. The only way to truly protect your interest is by purchasing Owner’s title insurance.
The title search does provide a lot of information that is important to the history of the property, however there are many instances in which the title search may not be able to provide insight. Possible title problems which may be hidden include:
- Any mistakes while examining the records
- Forgery
- Undisclosed heirs
- Errors or omissions in deeds
- Conflicting wills
An owner’s title insurance policy would protect you if an issue arises that is covered by your policy and would pay for your legal fees should you have to fight for your title in court.