Understanding Title Insurance as Part of the Homeownership Process

Jun 19, 2015 Concept of home insurance

Maybe you have wondered, “What exactly is title insurance?”  Newspapers often refer to title insurance in their weekly sections devoted to real estate, and you will hear about title insurance anytime you overhear conversations between real estate brokers.  If you are a homeowner, you might already be familiar with title insurance and its benefits.  However, many first-time home buyers are left wondering why they must purchase still another insurance policy.  Though there are a number of issues relating to that question, we will begin by giving a general answer.

Buying a home is quite possibly the most important, as well as most expensive, purchase you will ever make.  The purchase process demands that you work with your title company to ensure the property becomes legally yours, and that there are no other claims, encumbrances, or liens on your new property. Many people assume they have valid ownership of the property, because they received a deed from the seller, however, that is not always the case. Below are some frequently asked questions and the answers regarding the often misunderstood title insurance and why you need for it:

  1. What makes title insurance different from casualty insurance?  Title agents are responsible for identifying and eliminating any risks prior to issuing title insurance policies.  In contrast, casualty insurers assume the risks title insurers eliminate prior to issuing their policy and guarantee no title issues after your purchase..
  2. Who really needs title insurance?  Both buyers and lenders involved in transactions relating to real estate need title insurance and lenders require it.  Both parties  want to know the property is insured against potential defects in the title and lenders want to be sure they have a valid, first mortgage.   Title companies can provide this vital form of coverage which is subject to terms detailed in the policy.  The buyer, lender, and seller can all benefit from title insurance policies.
  3. What is covered by title insurance?  Title insurance can protect against claims that result from various types of defects in the past chain of title on a property.  This policy is effective from the date the policy is issued.  Here are a few examples of potential defects:  a error in a previous legal description on a deed or mortgage, a previous owner’s mortgage that has not been properly satisfied, previous companies not catching a wild document in the past.
  4. What types of title policies are offered by agents?  Title companies issue two different types of title insurance policies.  First, an owner’s policy, insures the homeowner, through their ownership and even if someone comes back to them for an error after they have sold the property.  The second type, a “lender’s” policy, which insures the lender’s the lender has a valid first lien position for their mortgage, which encumbers the property. .

For additional questions and answers, and other information relating to title insurance, please continue reading the article here.