What is Title Insurance

Title insurance is an insurance policy that insures against loss of ownership interest due to legal defects.  The most common type of policy is an Owner’s policy and the cost can be absorbed by either party which is ultimately determined by how the contract is prepared.  The other type of policy is a Mortgage policy which is required when the buyer is obtaining financing which insures the lender’s lien position and is a cost to the buyer.

 

Title insurance protects both the owner and the lender against a loss that can occur due to liens, encumbrances or defects on title.  This differs from other types of insurance in that it protects the insured against the potential event that someone else from the past has a legal claim on the property.  Common insurance policies, such as car insurance or health insurance, only protect the insured against future events.  Title insurance is meant to protect policyholders against claims.  The claims can include, but are not limited to, another person trying to claim ownership, fraud and forgery of documents.

How to Get Title Insurance

Your closing agent will begin the process by ordering a title search of the property once the contact has been signed.  The closing agent is chosen by the party paying for the Owner’s policy.  The real estate professional you are working with can guide you into choosing the right title agent as these two individuals work closely with one another.  The title agent uses one of the five major US title insurance underwriters for the title search. 

What Could Happen If You Don't Get Title Insurance?

Here’s how things could go wrong.  An individual may try to sell you a home they don’t own, there have been instances of renters posing as sellers.  Other matters that may arise are a seller may have purchased the property with someone whom they are no longer on speaking terms and are unaware their signature is needed to transfer the property to a potential buyer.  Or a problem might be lurking in the more distant past.  For example, the seller may have purchased the property from someone posing as a single person but in fact they were married and the spouse never signed the deed as required.  Or the seller may have inherited the property under the terms of a will but the estate of the deceased was never probated with the courts.

 

Not all title problems involve prior transfer of ownership.  Other matters that may arise are liens which may have been filed against the property.  Typical liens include mortgages, taxes, child support or a mechanic’s lien.  All liens must be satisfied to issue clear title.

 

As you can see some are more extreme than others but all of these issues create a cloud on title and must be addressed.

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