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Why get title insurance, really? Title insurance protects your property rights. It provides coverage for certain losses due to defects in the title that, occurred prior to your ownership. Title insurance protects against defects such as prior fraud or forgery. Surprisingly, these item could go undetected until after closing and possibly jeopardize your investment.
Title Insurance Overview
When a piece of real property is financed, purchased or sold, a record of that transaction is generally filed in public archives. Likewise, other events that may affect the ownership of a property are also documented and filed. These may include liens, levies, encumbrances, etc. When a buyer purchases title insurance, the title company searches these records to find (and remedy, if possible) issues that may affect the purchaser’s ownership.
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Title Search and Examination
This is where title insurance differs from traditional insurance models. When your purchase car or health in insurance, for example, the company assesses the risk of insuring you and bases its premium on the risk being assumed. With title insurance, the insurer first works to identify the status of ownership, liens and other matters affecting title. This is done by collecting documents affecting title from the public records that are identified for the recording of real estate transactions. This process is called the search. Once the search is complete, the underwriter can then determine the insurability of the title. Exceptions are listed from coverage and requirements to insure the property.
Learn more about the title insurance process by visiting our Interactive Guide To Title Insurance.
Of course, even the most skilled title professionals may not find all title problems. Other risks include matters that are more difficult to identify. Title issues resulting from filing errors, forgeries, undisclosed heirs, and other unforeseen problems can also be a factor. Your policy can play a key role in protecting your real estate investment.
You will have the option of purchasing an Owner’s Policy of title insurance, which provides insurance directly to the insured owner listed in the policy. It describes the type of real property interest owned. The insurance in both an Owner’s and Loan Policy is subject to the policy provisions, which include the covered risks, exclusions from coverage, the conditions and the exceptions to title listed on a schedule to the policy.
Additionally, when you purchase a new home or another piece of real property by securing a mortgage, you are required by your lender to purchase a Loan Policy. This policy insures the lender against covered title defects up to the amount of insurance. Take note, this coverage in favor of the lender lasts for the life of the loan under limited circumstances stated within the policy.
If purchased, you will pay a one-time premium for each policy (Owner’s Policy and Loan Policy) at the close of your transaction. This is based on the total value of your home as well as the amount of your loan. Once again, title insurance differs from other insurance models, where premiums are paid on an ongoing basis. The purchase of a home or other real estate may be the largest financial investment you ever make. Thus, title insurance can give you added peace of mind in knowing that the title to your investment is insured.
To learn more about Title Insurance visit the American Land Title Association’s Home Closing 101 website.