Title Insurance: The Essential Protection for Homeowners and Lenders
The purchase of a home is one of the most expensive and important purchases you will ever make. You and your mortgage lender will want to make sure the property is indeed yours and that no one else has any lien, claim or encumbrance on your property. The Land Title Association, in the following pages, answers some questions frequently asked about an often misunderstood line of insurance - title insurance.What is the difference between title insurance and casualty insurance?
Title insurers work to identify and eliminate risk before issuing a title insurance policy; casualty insurers assume risks. Casualty insurers collect regular premiums to pay for expected losses. Title companies, however, spend the greatest part of the premium dollar on risk elimination, by maintaining title plants and thoroughly searching and examining title to prevent losses caused by defects that may have been created in the past.Who needs title insurance?
Buyers and lenders in real estate transactions need title insurance. Both want to know that the property they are involved with is insured against certain title defects. The seller, buyer and lender all benefit from the insurance provided by title companies.What does title insurance insure?
Title insurance offers protection against claims resulting from various defects (as set out in the policy) which may exist in the title to a specific parcel of real property, effective on the issue date of the policy. For example, a claim could be made that:- A person has a deed or lease giving them ownership or the right to possess your property.
- Someone holds an easement giving them a right of access across your land.
- A person has a lien on your property securing the repayment of a debt.
What types of policies are available?
Title companies routinely issue two types of policies:- An “owner’s policy” which insures you, the Homebuyer, for as long as you and your heirs own the home.
- A “lender’s” policy which insures the priority of the lender’s security interest over the claims that others may have in the property.
What protection am I obtaining with my title policy?
A title insurance policy contains provisions for the payment of the legal fees in defense of a claim against your property which is covered under your policy. It also contains provisions for indemnification against losses which result from a covered claim. A premium is paid at the close of a transaction, and there are no continuing premiums due.What are my chances of ever using my title policy?
Because title companies are risk eliminators, the probability of exercising your right to make a claim is very low. However, when a title company provides a legal defense against claims covered by your policy, the savings to you for that legal defense alone will greatly exceed the one-time premium.What if I am buying property from someone I know?
Even if you know the owner, there may be matters affecting the property that are not obvious or known, even by the existing owner, which a title search and examination seeks to uncover. Examples include divorces, changes to wills, and personal liens or judgments placed against the seller. Title insurance provides the necessary assurances, as you shouldn’t buy real property without them.The process of risk identification and elimination performed by the title companies, prior to the issuance of a title policy, benefits all parties in the property transaction and helps maintain the traditional low cost of title insurance.
Article by CLTA
