The Importance Of Title InsuranceTitle insurance is an optional insurance policy for homeowners. Most real estate experts recommend that you purchase it always, however. You may never need to make a title insurance claim. If you do, however, you'll be glad your home is insured.
Imagine having to leave your home because county records show that the seller who sold you the home never really purchased it himself. In this instance -- which happens! -- you would be forcibly removed from your home and left without shelter.
Title insurance protects against situations such as these. When a claim is made, your title insurer will research the claim on your behalf and, if necessary, will make you whole for any loss incurred.
This may include paying your remaining mortgage balance in full, and paying relief for related expenses.
Title insurance is purchased at the time of closing and is a line-item on your settlement statement. It's a one-time cost. Title insurance is not paid annually. Policies for a refinance transaction are often less costly than those for a purchase.
Your lender can assign your title insurer, or you may comparison shop on your own.
Title Insurance ClaimsIt is the seller's obligation to sell you a home with "clear title". This means that you are buying a home with no liens, encumbrances, or claims to which you did not agree and which are known to the seller or the title insurer.
However, mistakes occur and you don't want to be on the receiving end of a title claim. Note that none of the reasons for a claim will be "your fault", necessarily. Title claims are often the result of oversight or error.
Here are few examples of potential claims against your title :
- Your home sale was not properly recorded in the public record
- The seller's home loan was not properly paid off, or was not recorded as "satisfied"
- Evidence of an undisclosed prior mortgage which was not paid at closing
- Forged notarizations and/or forged witness acknowledgement
- A "newer" will is discovered after probate of an initial will
This is known as a title search.
Title searches are hunts for flaws on a home's title. The search is performed by the title insurer and involves an extensive hunt through public records and private databases in order to locate claims of interest to a property which currently, and previously, existed.
These claims of ownership are compiled into a document called a "title report". The title report includes the full legal description of the property; a summary of real estate tax payments due and paid; and, recent claims made to the property along with notes stating whether those claims have been satisfied (i.e. are no longer in effect).
Title search errors are covered by your title insurance policy.
You Must Purchase Title Insurance For Your LenderTitle insurance is optional coverage for a homeowner. However, title insurance for your lender is required. This is because -- like you -- your lender has an interest in your property.
Also like you, your lender does not want to see your home undefended, and lost, in a valid title claim.
The lender's title policy is sometimes called a "loan title policy" and it functions in much the same way as your owner's title policy. A title search is performed to identify encumbrances and liens and any unsatisfied claims are addressed prior to closing.
With the title policy in place, in the event of an error or claim, your lender can be reimbursed for losses.
Home sellers typically pay for a buyer's lender's title policy. Premiums are paid up-front at closing with nothing due over the remaining years of a loan. The policy expires when the current loan is paid-in-full. When you refinance, you will be required to get a new lender's title policy.
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