What is Title Insurance
Real estate is the nation’s largest market, making the purchase and sale of real property essential to the health of the U.S. economy. These transactions are never without risk, however. That’s why title insurance has been protecting American homeowners for more than 125 years.
The Two Title Insurance Policies
As a buyer of real estate property, you’ll want to protect your investment — and the ownership rights that come with it. That’s why it’s wise to purchase an owner’s policy of title insurance in conjunction with the loan policy your mortgage lender will require you to purchase. The loan policy insures the lender against covered title defects up to the amount of the insurance, while an owner’s policy protects your interest in the property.
Learn more about both title insurance policies and which helps to protect your interests
If you’ve ever mortgaged a home, chances are you were required to purchase a title insurance policy. This lender’s policy (often called a loan policy) is required by most lending institutions as a way to insure their security interest in the property. This policy protects the bank or other lending institution for as long as they maintain an interest in the property (typically until your mortgage is paid off).
However, as a buyer, you also want to protect your investment — and the ownership rights that come with it. This is why it’s wise to purchase an owner’s policy of title insurance, which will protect your rights as the homeowner for as long as you or your heirs have an interest in the property.
Both title insurance policies not only pay valid claims and legal fees to defend against hidden title issues, but also help to decrease ownership risks by providing a thorough title search prior to the issuance of either policy.
There are various customs regarding the purchase of title insurance. In some areas of the country, it is customary for the seller to purchase the owner’s policy for the buyer, whereas in other areas the buyer purchases this important protection.
If you’re considering refinancing your mortgage, you may be surprised to see that you are required to purchase a new lender’s policy of title insurance. This is because a lender’s policy only provides coverage for the life of a loan. When a home is refinanced, the life of one loan ends and another begins. Thus, a new lender’s policy for title is required. Because an owner’s policy provides coverage for as long as you or your heirs hold an interest in the property, there is no need to purchase a new owner’s policy when refinancing.
Public Records Search
An in-depth title search is generally comprised of a thorough examination of public records. This can be difficult because, depending on the jurisdiction, liens and judgments on a property may be filed a number of ways – by the name of the buyer, the name of owner, the street address, lot number, etc. Many title companies today have created exhaustive and systematic methods for conducting these searches, resulting in large databases of consistently indexed data that facilitate faster and easier title searches. These “title plants,” or large stores of uniformly organized public data, help to complete title searches faster and help ensure accuracy.
Title searchers uncover more than simply liens and judgments, however. A thorough title search will include information about mortgages, street and sewer assessments, taxes and levies and countless other issues that could taint an otherwise sound transaction.
For instance, a title searcher may examine a property and find no judgments or liens, but uncover special building restrictions of which the buyer was unaware. Or the title search may disclose previously established easements, such as civil sewer or power. A title searcher may find that some part of the property encroaches on neighboring land, warning against possible ownership issues in the future.
Even for a newly constructed property, a title search can be quite time-consuming. While the actual structure in question may be new, the land on which it resides has likely transferred hands countless times prior to the new construction, making ownership issues a possibility down the road. Additionally, and in particular with respect to a newly-built home, there is no guarantee that subcontractors and/or suppliers have not placed liens on the property for unpaid debts.
Behind the Scenes
The legwork behind the issuance of a title insurance policy is rarely seen by the buyers or sellers of a property. Title professionals work to remove any existing “clouds” (judgments, easements, liens, etc.) prior to issuing a policy in order to decrease their financial risk to insure the title. When a cloud is difficult to clear or significant enough to question the wisdom of following through with the transaction, the title company will make this known to the prospective buyer.
Peace of Mind
The data collected through a title search not only gives the buyer peace of mind regarding the property they’re purchasing, but also helps reduce the risk of title problems arising in the future. This makes a title insurance policy a valuable investment towards protecting an even greater investment – your home.