What is Title Insurance?

What is Title Insurance?


When you purchase or re-finance a home, there are many things thrown at you: documents you have to sign, insurance coverage to purchase, and financial institutions to deal with. Who can remember or completely digest everything? Title Insurance is one of these things homeowners often forget they have, or maybe never fully understood in the first place.


What is title insurance?  Title Insurance is something almost every homeowner has, with few exceptions. Title insurance is not the same as homeowners insurance. Homeowners insurance protects you from damage to your property (i.e., house burns down) and from your liability for injuries and damages that you cause to other people (i.e., someone is injured on the property through your fault).

Title insurance protects your ownership of real estate from unresolved “claims” existing against the property before you became the owner. They are unknown to you and only later come to light because of a complaint or demand from another person, company, or governmental agency. Title insurance also protects you against fraud and forgery related to the title.


How does it work? Jeremy Yohe, spokesman for the Washington, D.C.-based American Land Title Association explains, “Title insurance is really a two-part transaction. First, the company or attorney searches property records to ensure that there haven’t been any clerical errors, mistakes in examining records, undisclosed heirs, omissions in deeds, unknown liens or fraud involving the deed…One out of every three searches reveals a title or public record defect that’s fixed before the transaction closes.” [1]

The following explanation is from the website of the American Land Title Association (ALTA):

An Owner’s Policy of title insurance assures that the home you are buying is free of issues that could cloud the title.  Prior to issuing the insurance policy and before you close, title professionals conduct an exhaustive search to check for liens, encumbrances, easements, and other problems that could affect the status of the title.  If a problem is discovered, title professionals typically take care of it, or notify you so that you can make an informed decision.  If a title defect covered under the policy isn’t discovered until after you close, the insurance kicks in to cover your losses.

What are some typical problems that might cloud a title? There may be a lien on the property for unpaid property taxes by the previous owner, or a mechanic’s lien by a subcontractor who performed work on the property and was never paid.  Other examples include a prior unpaid mortgage, or covenants and restrictions on the use of the property. Sometimes there are problems that go undetected during the title search, such as fraud or forgery, a mistake in the public record, or an unknown heir claiming ownership.  .  If this occurs, you would file a claim with your title insurance company. [2]


Does everyone have Title Insurance? You can own real estate without having title insurance. If you received property (i.e., house, condo, rental property, land), as an inheritance or gift, you might not have a policy. But if you borrowed money from a lending institution to buy the property you undoubtedly also bought a title insurance policy. In fact you paid a one-time premium for two title insurance policies, one to protect you and the other to protect the lender. Your policy is several pages long. You probably keep it in your file with the deed and all the documents from the purchase.



[1] Read more: http://www.bankrate.com/finance/mortgages/6-questions-to-ask-about-title-insurance-1.aspx#ixzz3HebmKHgK

[2] http://www.alta.org/

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