For many people, the purchase of a home or other real estate property is the largest monetary investment they will make in their lifetime.  People will often purchase homeowners insurance in order to protect this investment; however, title insurance can be just as crucial.  Title insurance financially protects you and your lender from any unknown claims or defects in the title of the property you are buying.  

Title insurance is an insurance policy that covers past title problems that come up after you buy or refinance a home and that are unknown at the time of purchase. A title insurance policy does not cover ownership issues that arise after you have purchased a home or other real estate property.  

There Are Two Types of Title Insurance.   Both the owner’s policy and the lender’s policy protect the named insureds against past losses that can occur after a real estate settlement.   1. Owner’s Policy - An owner’s policy protects a buyer’s ownership interest in real estate if a past title or ownership issue comes up after the purchase.  2. Lender’s Policy - A lender’s policy protects the lender in the event a past title or ownership problem arises after the real estate transaction.  If you are borrowing money from a financial institution for the real estate purchase, the lending institution will probably require you to buy a lender’s policy to protect its interest as well.

 

“Title” means the collective ownership of rights for a piece of property and includes all previous transfers of ownership and liens on the property. A title is not the same thing as a “deed.”  A deed is the legal document that transfers title from one person to another.  A title documents your legal ownership or interest in real property, meaning you have the right to use that land and attached structures.  It may be a full or partial interest in the property.  For example, you may retain ownership of a piece of real property, but you may transfer certain rights, such as mineral rights, to someone else.  Unlike transferring title to an automobile, title transfers involving real property are more complex because land usage may change over time.  

A title search is a routine part of a property transaction and the cost to conduct a title search is typically included in the price of title insurance.  Before issuing a policy, the title agent or company conducts a detailed review of historical public records to see if there are any title concerns with the property you are looking to buy.  These records include, but are not limited to, court judgments, deeds, mortgages, wills, divorce decrees, tax records, and maps.  

Title defects, often referred to as unknown claims or encumbrances, can result in substantial financial losses, up to and including loss of ownership of the property.  If you have a title insurance policy, the insurance company will defend your title in court and pay any settlement amount you owe to clear the title, as long as the defect is a covered item.  Following are examples of title defects:

• liens on a property
• lost, forged, or incorrectly filed deeds
• property access issues, a mortgage or property taxes not paid by a prior owner
• an unknown or missing heir making claim to the property

When you purchase title insurance, the agent or company will search public records to document the chain of ownership of a property.  If any liens or defects are found, the title company will either cure them before issuing a title policy, or exclude them from coverage. Once the company believes that the property title is clean, they will issue you and your lender title insurance policies.  These insurance policies protect you and your lender financially from any unknown claims or defects existing at the time of purchase.

A title insurance policy is issued for the current value of the property.  The owner’s policy is typically valued according to the purchase price for the property.  The lender’s policy is determined by the amount of the loan.  There is no benefit to overinsuring, and under-insuring may result in insufficient coverage. There may be discounts if you buy an owner’s and lender’s policy from the same insurer (simultaneous issue rate) or if you buy a policy from an insurer that has previously insured your property (reissue rate).  Refinancing rates may be available as well.  

Either the seller or the buyer can purchase the owner’s policy; however, there is likely a local customary practice in your area. Ask your real estate agent for clarification. Also, the person that pays for the insurance has the right to choose the title insurance provider.   The lender will typically require the borrower to purchase a lender’s policy for the benefit of the lender as a condition of the loan.  The lender may request or insist on a specific provider according to its needs.  Premium for a title insurance policy is made with a one-time payment at the time of closing.