what-is-title-insurance

What is Title Insurance?

Title is a bundle of rights in real property. Protecting purchasers and lenders against loss is accomplished by the issuance of a title insurance policy. Usually, during a purchase transaction the lender requests a policy (commonly referred to as the Lender’s Policy) while the buyers receive their own policy (commonly referred to as an Owner’s Policy).
When rights to real property are transferred, insurance is generally purchased to cover potential losses which could result from unforeseen defects in the title. For instance, a lien on the property that went undiscovered during the purchase transaction could pop up, years later, and result in losses for either the homeowner or the bank that financed the transaction. In the event of such a loss, the title insurer would cover the expenses in accordance with the terms of the policy.
Generally, lenders and owners carry separate policies. The Lender’s Policy insures the lender for the amount of the loan. The Owner’s Policy insures the purchaser for the purchase price.
Title Insurance Shields You from Risk
How is Title Insurance Different?

How is title insurance different than other types of insurance?

Unlike other types of insurance policies, such as homeowner’s insurance which are designed to cover expenses incurred from unforeseen future events, such as accidents or natural disasters, title insurance covers future losses caused by events that occurred in the past.
Title insurers perform an extensive search and examination of public records to determine whether there are any adverse claims (title defects) attached to the subject property. Said defects/claims are either eliminated prior to the issuance of a title policy or their existence is excepted from coverage. Your policy is issued after the closing of your new home, for a one time nominal fee, and is good for as long as you own the property.
What's involved in a title search?

What’s involved in a title search?

A title search is actually made up of three separate searches:
  • Chain of Title – History of the ownership of the subject property
  • Tax Search – The tax search reveals the status of taxes and assessments
  • Judgment and Name Search – Identifies judgments and liens against the owners and purchasers
Once the three searches have been completed, the file is reviewed by an examiner who determines:
  • Does the seller have the legal right to transfer title to the property?
  • Are there current or past-due taxes or assessments that must be paid, prior to title transfer?
  • Are there any liens or other unpaid settlements against the owners or the property that must be paid?
Rights established by judgment decrees, unpaid federal income taxes and mechanic liens all may be prior claims on the property, ahead of the buyer’s or lender’s rights. The title search should discover any title defects that are of public record, thus allowing the title company to work with the sellers to resolve them, prior to closing.
Title Insurance, a Wise Decision

In Summary

Once the searches have been completed, and known defects resolved, the title company issues a policy stating the conditions under which it will insure title. Most undiscovered defects are covered by the insurance policy.