WHAT IS TITLE INSURANCE?

A Word About Real Estate

Real estate has traditionally been a family’s most valuable asset. It is a form of wealth that is protected by many laws. These laws have been enacted to protect one’s ownership of real estate and the improvements located on the land. The owner, the owner’s family, and the owner’s heirs have rights or claims in and to the property that you are buying. Those who may have an interest in or lien upon the property could be governmental bodies, contractors, lenders, judgment creditors, the Internal Revenue Service, or various other individuals or corporations. The real estate may be sold to you without the knowledge of the party having a right or claim in and to the property. In addition, you may purchase the real estate without having any knowledge of these rights or claims. In either event, these rights or claims remain attached to the title to the property that you are buying until they are extinguished.

The Past Can Determine Your Future

Generally, a person thinks of insurance in terms of the payment of future loss due to the occurrence of some future event. For instance, a party obtains automobile insurance in order to pay for future loss occasioned by a future “fender bender” or for the future theft of the car. Title insurance is a unique form of insurance. It provides coverage for future claims or future losses due to title defects which are created by some past event (i.e., event prior to the acquisition of the property.) These risks are far less obvious than those protected against by automobile insurance, but can be just as devastating. The following information will answer some commonly asked questions about title insurance.

Will You Get Clear Title?

It is of utmost importance that you receive clear title to the property when you purchase real estate. In order to do so, you must first be informed of any existing rights or claims that may, in the future, threaten your title and possession to the property. Title insurance provides you with this twofold protection.

How Do You Find Out What Claims Exist?

In order to determine the status of title, a diligent search of the public records is done for those documents associated with the property. Your title insurance company then examines those recorded documents in order to determine if there are any rights or claims that may have an impact upon the title to the property. The title search may reveal the existence of recorded defects, liens or encumbrances upon the title such as unpaid taxes, unsatisfied mortgages, judgments and tax liens against the current or past owners, easements, restrictions and court actions. These recorded defects, liens and encumbrances are reported to you prior to your purchase of the property. Once reported, these matters can be accepted (meaning the buyer accepts the property without the matters being resolved), resolved or extinguished prior to the closing of the transaction. In addition, you are protected against any loss or damage resulting from recorded defects, liens or encumbrances upon the title that are unreported to you and which are within the scope of coverage of the particular policy issued in the transaction. This is the first benefit you receive from title insurance.

What About Undiscovered Claims?

The title to the property that you have purchased could be seriously threatened or lost completely by hazards which are considered “hidden risks.” “Hidden Risks” are those matters, rights or claims that are not shown by the public records and, therefore, are not discoverable by a search and examination of those public records. Matters such as forgery, incompetency or incapacity of the parties, fraudulent impersonation, and unknown errors in the records are examples of “hidden risks” which could provide a basis for a claim after you have purchased the property. In order to protect you against this possibility, your title insurance company provides insurance coverage for such claims. This is the second benefit you receive from title insurance.

How Does a Title Insurance Policy Protect Against All These Claims?

If a claim is made against your insured title, your title insurance company protects you by: (1) Defending your title, if necessary; and (2) Bearing the cost of settling the case, if it proves valid, in order to protect your title and maintain your possession of your property.

Only One Premium

Unlike other forms of insurance, the original premium is your only cost as long as you or your heirs own the property. There are no annual payments to keep your Owner’s Title Insurance Policy in force.

What is title insurance, and why do I need it?

Title insurance is an insurance policy that protects you against loss that could result from defects in the title of the property you are buying. The premium is paid only once and is good until the property’s ownership changes. Unlike most types of insurance which protect policyholders from future events, title insurance protects you against defects that could already exist.

When a property is financed, bought or sold, a record of that transaction is generally filed in public archives. Likewise, records of other events that may affect the ownership of a property, like liens or levies, are also archived. When you buy title insurance for your property, a title company searches these records to find – and remedy, if possible – several types of ownership issues.

First, the title company searches public records to determine the property’s ownership status. After this search, the underwriter will determine the insurability of the title.

Even the most skilled title professionals may not find all problems associated with a property, though. Some risks, such as title issues due to filing errors, forgeries, or undisclosed heirs, are difficult to identify. So after the title company finishes its searching, it also provides insurance title policy that will help protect you from a variety of issues that might be uncovered later.

If you take out a mortgage loan when you buy your property, your lender will require a loan policy of title insurance. This protects the lender’s interest in your property until your loan is paid off or refinanced.  On the other hand, an owner’s policy of title insurance insures your ownership rights to the property. Even though you’ll pay for this policy only once, your coverage will last as long as you own your home. A real estate purchase may be the largest financial investment you ever make. So, when you buy an owner’s policy of title insurance, just think of it as buying some peace of mind!

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