Frequently Asked Questions
Title insurance is a contract to protect an owner against losses arising through defects in the title to real estate owned. If the title is insurable, the company guarantees the owner against loss due to any defect in title or expenses in legal defense of the title pursuant to the terms of the policy.
Title insurance is necessary to protect possibly the most important investment you’ll ever make in your home. A lender goes to great lengths to minimize the risk of lending you the money you need to buy a home. Your credit is checked as an indication of your ability to pay back your loan. Then, your lender goes a step further. He or she makes sure that the quality of the title to the property you are about to buy and which you will pledge as security for the loan is satisfactory. The lender does this by obtaining a loan policy of title insurance.
When a person buys consumer goods such as a car, they seldom need to know whether the former owner is married, single or divorced; whether they have paid their taxes or are involved in a lawsuit. But when a person buys a home it is necessary to have all that information and much more. For while he or she may own the property, others may also have rights in the same real estate.
A title is the foundation of property ownership. It is the owner’s right to possess and use the property.
A title search is a detailed examination of the historical records concerning a property. These records include deeds, court records, property and name indexes, and many other documents. The purpose of the search is to verify the seller’s right to transfer ownership, and to discover any claims, defects and other rights or burdens on the property.
First, a service known as a title search describes the condition and quality of the title to the land you are buying. Then, your title insurance protects you against mistakes or threats that might otherwise result in financial loss to you, including those hidden, unknown items.
Your title insurance protection is a permanent assurance that your ownership and use will be defended promptly against claims at no cost to you, whether the claim is valid or not.
Because land is permanent and can have many owners over the years, various rights in land (such as mineral, air or utility rights) may have been acquired by others by the time you come into possession of it, even if the land has never before been built upon. So in order to transfer a clear title to a piece of land, it is first necessary to determine whether any rights are outstanding.
The cost is directly related to the value of the property. The higher the value, the more coverage is needed. The premium is small compared to the total purchase price. The premium is paid only once and remains in force for as long as the property is owned by the insured and continues to protect the insured on warranties after it is sold.
For as long as you or your heirs retain an interest in the property and, in some cases, even beyond.
If a claim is made against your property, title insurance will, in accordance with the terms of your policy, assure you of a legal defense – and pay all court costs and related fees. Also, if the claim proves valid, you will be reimbursed for your actual loss up to the face amount of the policy.
If a lender has title insurance protection and you don’t, what possible danger of loss can you face?
As an example, let’s say you’ve bought a home for $150,000. You’ve made a $30,000 down payment, and your lender holds an $120,000 mortgage lien or beneficial interest. Your lender has title insurance coverage protecting his interest up to $120,000.
The loan 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 sale.
This policy only protects the lender’s interest. It does not protect you. That’s why you need an owner’s policy, which can be issued at the same time as the loan policy for a nominal one-time fee.
A title search can show a number of title defects and liens, as well as other encumbrances and restrictions. Among these are unpaid taxes, unsatisfied mortgages, judgments against the seller and restrictions limiting the use of the land.
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