What is title insurance and why do I need it?
Title insurance is a term we see and hear quite frequently. We see it mentioned in newspapers and advertisements. We hear it in conversations with lenders and real estate brokers. If you've ever purchased a home before, you may already be familiar with the benefits and terms of title insurance. But if this is your first home loan, you may be wondering why you need another insurance policy.
Why do I need Title Insurance?
The answer is simple: The purchase of a home is most likely one of the most expensive and important purchases you will ever make. You, and especially your mortgage lender, want to make sure the property is indeed yours: That no individual or government entity has any right, lien, claim, or encumbrance on your property. The function of a title insurance company is to make sure your rights and interests to the property are clear, that transfer of title takes place efficiently and correctly, and that your interests as a homebuyer are fully protected.
Types of Title Insurance
Title insurance companies provide services to buyers, sellers, real estate developers, builders, mortgage lenders and others who have an interest in real estate transfer. Title companies typically issue two types of title policies: 1) Owner's Policy. This policy covers you, the homebuyer 2) Lender's Policy. This policy covers the lending institution over the life of the loan. Both types of policy are issued at the time of transfer for a one-time premium.
Title Searches
Before issuing a policy, the title company performs an in-depth search of the public records to determine if anyone other than you has an interest in the property. The search may be performed by title company personnel using either public records or, more likely, the information contained in the company's own title plant. After a thorough examination of the records, any title problems are usually found and can be cleared up prior to your purchase of the property. Once a title policy is issued, if any claim which is covered under your policy is ever filed against your property, the title company will pay the legal fees involved in the defense of your rights, plus any covered loss arising from a valid claim. This protection remains in effect as long as you or your heirs own the property.
Risks
The fact that title companies try to eliminate risks before they develop makes title insurance significantly different from other types of insurance. Most forms of insurance assume risks by providing financial protection through a pooling of risks for losses arising from an unforeseen future event, say a fire, accident or theft. On the other hand, the purpose of title insurance is to eliminate risks and prevent losses caused by defects in title that may have happened in the past. The risks are examined and mitigated before property changes hands. This risk elimination has benefits to both the homebuyer and the title company. It minimizes the chances that adverse claims might be raised, thereby reducing the number of claims that have to be defended or satisfied. This keeps costs down for the title company and the premiums low for the homebuyer. Buying a home is a big step emotionally and financially. With title insurance you are assured that any valid claim against your property will be borne by the title company, and that the odds of a claim being filed are slim indeed.
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