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 eliminates any risks and losses caused by faults in title from an event that occurred before you owned the property.
How does title insurance differ from other types of insurance?
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. Another difference is that you pay a one-time premium. A title insurance policy will protect you from risks or undiscovered interests.
There are two principal forms of title insurance:
- The lender's policy
- The owner's policy
What is a Lender's Policy?
A lender's policy protects the mortgage holder. If there is a fault in title that results in a loss, the mortgage holder will be paid back.
What is an Owner's Policy?
An Owner's policy protects you, the purchaser, against a loss that may occur from a fault in your ownership or interest you have in the property. 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.
What sort of claims does a title insurance policy cover against?
Title insurance covers against any number of claims against your title. For example, say a previous owner represented himself as single in his deed, when he was in fact married. His spouse could then decide to seek ownership of the home, since she did not agree to its sale. Or say in a previous sale of the home, the seller was shown to be of unsound mind when he signed over his property rights. His family could then seek to void the sale and reclaim ownership for themselves.
Other types of claims covered include:
- Those made by former owners' undisclosed heirs or people claiming unrecorded easements or forgotten liens
- Deeds found to be invalid, forged or signed by minors or persons claiming to be someone they are not
- Judgments or restrictions placed against a previous owner's rights to the land or certain uses of it
- Those arising from clerical errors or oversights in the property's records
- Claims of back taxes or mortgage payments owed by a previous owner
- The list goes on.
How long does my coverage last?
Once purchased, title insurance remains in effect for as long as you own your property. Title insurance adds security and peace of mind to home ownership.
My lender had me buy title insurance for them when I took out my mortgage. Does their policy cover me, too?
No. The policy your lender had you buy is known as a lender's policy. It protects the lender's investment, not yours. You will need to purchase what is known as an owner's policy to cover yourself. The cost of the policy depends on the value of the home but should be minimal. Also, unlike homeowners' insurance, title insurance is a one-time purchase. A single premium covers you and your heirs for as long as you own the property.
I had a title search done, and it found none of the problems listed above. Why do I still need title insurance on top of that?
A title search is an important first step, and we recommend it for any property purchase. A thorough look at your property's historical record, including deeds, court records and more, can turn up many of the issues listed above before you take ownership of the home.
Unfortunately, no search can uncover everything, particularly errors, omissions or issues related to fraud that have yet to be discovered. A title insurance policy provides peace of mind against these hidden dangers.
Does an attorney's opinion provide the same safeguards as a title insurance policy?
No. Like a title search, an attorney's opinion involves only known documents and cannot account for errors, omissions or issues related to fraud that have yet to be discovered. Plus, if claims against your deed arise after the fact, the attorney who provided the opinion is not liable; you are.
An attorney's opinion is just that, an opinion! It does not insure clear title. When problems arise in the future, often times the attorney who gave the opinion has moved, retired or is deceased. At this point, if falls on the homeowner to clear title.
Title insurance companies are regulated by the state and are required to maintain loss reserves. Law firms are not regulated in the same way and are not necessarily required to maintain malpractice insurance.
How do I obtain title insurance and what does it cost?
Let the title company, attorney or agent handling the closing of your property know that you want to purchase an Owner's Title Insurance Policy. When choosing a title insurer, you should look for a company with experience, as well as the financial strength to protect you.
In most states, the insurance commission or some other governmental body controls the premiums for title insurance policies. You only pay the premium once. The cost depends upon the purchase price of the property, and your policy amount must be equal to the purchase price.