Title insurance is an important part of your closing, although it is probably the most misunderstood form of insurance. While other types of insurance protect your from risks that could occur in the future, Title Insurance protects you from risks associated with what has already occurred.
In understanding how Title Insurance works, you should understand that while the home may have been built recently, the land has existed for quite some time. The land has been transferred over and over. Were those transactions handled correctly? Were all of the heirs to a person who died owning the property accounted for in the documentation? Were any of the legal documents forged? Did the Clerk of the Court where the documents are recorded index the documents correctly?
Because you may never know the answers to these questions, Title Insurance exists.
What you may not know is that there are different types of Title Insurance products. There are Lender’s Title Insurance and Owner’s Title Insurance policies. Most lenders require title insurance for their real estate loans. This title insurance is called Lenders Title Insurance, and while it protects your lender’s interest in the property, it DOES NOT protect you, the owner. Only an Owner’s Title Insurance Policy can protect your interest in the property. And as you, the homeowner, make payments each month, your interest increases and your lender’s interest decreases. The main question to ask yourself about title insurance is, “If my lender places an importance on title insurance to the point that they require it, should I be protected as well?” You should also consider an Enhanced Owners Policy. Click Here for the differences between the types of Owners Title Insurance policies that may be available to you.
Below is some information to help with many of the questions about title insurance:
What is title? Simply stated, the title to a piece of property is the evidence that the owner is in lawful possession of that property
What is title insurance? Title insurance protects real estate owners and lenders against any property loss or damage they might experience because of liens, encumbrances or the defects in the title to the property. Each title insurance policy is subject to specific terms, conditions, and exclusions.
How does title insurance differ from other insurance? Insurance such as car, life, health, etc. protects against potential future events and is paid for with monthly or annual premiums. A title policy insures against events that occurred in the past of the real property and the people who owned it, for a one-time premium paid at the close of the escrow.
What does it cover? Title insurance protects against claims from defects. Defects are things such as another person claiming an ownership interest, improperly recorded documents, fraud, forgery, liens, encroachments, easements and other items that are specified in the actual policy.
Who needs it? Purchasers and lenders need title insurance in order to be insured against various possible title defects. The buyer, seller, and lender all benefit from the issuance of title insurance.
How is a title policy created? After the escrow officer or lender opens the title order, Stewart Title begins a title search. A Preliminary Report is issued to the customer for review and approval. All closing documents are recorded upon escrow’s instruction. When recording has been confirmed, demands are paid, funds are disbursed, and the actual title policy is created.
What is escrow? Escrow refers to the process in which the funds of a transaction (such as the sale of a house) are held by a third party, often the title company or an attorney in the case of real estate, pending the fulfillment of the transaction.
What are the policy types? A Standard or Enhanced Owner’s Policy insures the new owner/homebuyer, and the lender’s policy insures the priority of the lender’s security interest.
Call our office and ask to speak with our Licensed Title Insurance Agent for more information or use our GFE Express Quote option on our Pricing and Quotes Page.
* Content from Stewart Title Guaranty Company “What is Title Insurance?” documentation.