What is Title Insurance?
If you’ve purchased a home, you may be familiar with the benefits of Title Insurance. Newspapers refer to it in the weekly real estate section, and it’s common in conversations with real estate brokers. However, you may be wondering, “Why do I need yet another insurance policy?” While that question raises some issues, we will start with a general answer. The purchase of a home is one of the most important investments you will ever make. You and your mortgage lender will want to make sure the property is indeed yours and that no one else has any lien, claim or encumbrance on your property.
What’s the Difference Between Title Insurance and Casualty Insurance?
Title insurers work to identify and eliminate risk before issuing a Title Insurance policy while Casualty insurers assume risks. Casualty insurance companies realize that a certain number of losses will occur each year in any given category such as auto, fire, etc. The insurers collect premiums either monthly or annually from the policyholders to establish reserve funds to pay for expected losses. Title companies work in a significantly different manner. Title Insurance will indemnify you against loss under the terms of your policy. However, title companies work in advance of issuing your policy to identify and eliminate potential risks, protecting you from losses caused by title defects that were created in the past. Title Insurance also differs from casualty insurance in that the greatest part of the Title Insurance premium dollar goes towards risk elimination. Title companies maintain title plants that contain information regarding property transfers and liens that reach back for many years. Maintaining these title plants, along with the searching and examining of title, is where most of your premium dollar goes.
Who Needs Title Insurance?
Buyers and lenders in real estate transactions need Title Insurance. Both want to know the property they are tied to is insured against title defects. Title companies provide necessitated insurance coverage, subject to the terms of the policy. The seller, buyer and lender benefit from the insurance provided by title companies.
What Does Title Insurance Insure?
Title Insurance offers protection against claims that occur because of various defects set out in the policy that may exist in the title to a specific parcel of real property, effective on the issue date of the policy. For example, a person might claim to have a deed or lease giving them ownership or the right to possess your property. Another person could claim to hold an easement giving them a right of access to your land. And a person may claim that they have a lien on your property securing the repayment of debt. Whether the property in question is an empty lot or holds a 50-story office tower, title companies work with all types of real property.
What Type of Policies are Available?
Title companies routinely issue two types of policies: (1) an “owner’s policy” which insures you, the homebuyer, for as long as you and your heirs own the home, and (2) a “lender’s policy” which insures the priority of the lender’s security interest over the claims that others may have in the property.
What Protection am I Obtaining with My Title Policy?
A Title Insurance policy contains provisions for the payment of the legal fees in defense of a claim against your property, covered under the policy. It also contains indemnification against losses that result from a covered claim. A premium is paid at the close of a transaction and there are no continuing premiums due.
What are My Chances of Ever Using My Title Policy?
By acquiring your policy, you procure the knowledge that recorded land documents have been searched and examined so that the Title Insurance covering your property can be issued. We eliminate risks so that there is a low probability of having to make a claim. However, the continuous protection of the policy remains important. When a title company provides a legal defense against claims covered by your Title Insurance policy, the savings you’ll gain from a legal defense will greatly exceed the one-time premium.
What If I am Buying Property from Someone I Know?
People undergo changes in their personal lives that may affect the title to their property. People get divorced, change their wills, and engage in transactions that limit the use of the property, and have liens and judgments placed against them for various reasons. There may also be matters that affect the property that are not known by the existing owner. A title search and examination seek to uncover any issues as part of the process leading up to the issuance of the Title Insurance policy. Just as you wouldn’t make an investment based on a phone call, you shouldn’t buy real property without assurances to your title. Title Insurance provides these assurances. The process of risk identification and elimination performed by the title companies prior to the issuance of a title policy benefit all parties in the property transaction. It minimizes the chances that adverse claims might be raised, and, by doing so, reduces the number of claims that need to be defended or satisfied. This process keeps costs and expenses down for the title company and maintains the traditionally low cost of Title Insurance.