What is Title Insurance?
Why Do You Need Title Insurance?
To protect possibly the most important investment you'll ever make - the investment in your home. A lender goes to great lengths to minimize the risk of lending you the money you need to buy a home. First, your credit is checked as an indication of your ability to pay back your loan. Then, your lender goes a step further, they make sure that the quality of the title to the property you are about to buy, and which you will pledge as security for the loan, is satisfactory. The lender does this by obtaining a loan policy of title insurance.
The Loan Policy Does NOT Protect You
The loan policy protects the lender against loss due to unknown title defects. It also protects the lender's interest from certain matters which may exist, but not be knowable at the time of sale. But this policy only protects the lender's interest. It does NOT protect you. That's why you need an owner's policy, which can be issued at the same time as the loan policy for a nominal one-time fee.
What Danger of Loss Can You Face?
If a lender has title insurance protection and you don't, what possible danger of loss can you face?
As an example, let's say you bought a home for $100,000.00. You made a $20,000.00 down payment, and your lender holds and $80,000.00 mortgage lien or beneficial interest. Your lender has title insurance coverage protecting his interest up to $80,000.00. But, your $20,000.00 down payment is not covered. What if some matter arises affecting the past ownership of the property? The title insurance company would only defend and protect the interest of the lender. You would have to assume the financial burden of your own legal defense. If your defense is not successful, the result could be a total loss of title. The title insurance company pays the lender's loss and is entitled to take an assignment of your debt. You are out your down payment, other equity in the property which you have accumulated, and your home. And, you still owe the remaining balance on your note.
How Can There Be a Title Defect If the Title Has Been Searched and a Loan Policy Issued?
Title insurance is issued after a careful examination of copies of the public records. But, even the most thorough search cannot absolutely assure that no title hazards are present, despite the knowledge and experience of professional title examiners. In addition to matters shown by public records, other title problems may exist that can not be disclosed in a search.
What Protection Does Title Insurance Provide Against Defects and Hidden Risks?
Title insurance will pay for defending against any lawsuit attacking your title as insured, and will either clear up title problems, or pay the insured's losses. For a one-time premium, an owner's title insurance policy remains in effect as long as your or your heirs retain an interest in the property, or have an obligation under a warranty in any conveyance of it. Owner's residential title insurance, issued simultaneously with a loan policy, is the best title insurance value you can get.
By combining expertise in risk elimination at the time of issuing a policy, and protection against hidden risks as long as the policy remains in effect, your title insurer protects against title loss.
What Title Insurance Protects Against
Here are just a few of the most common hidden risks that can cause a loss of title or create an encumbrance on title.
False impersonation of the true owner of the property
Forged deeds, releases or wills
Undisclosed or missing heirs
Instruments executed under invalid or expired power of attorney
Mistakes in recording legal documents
Misinterpretations of wills
Deeds by persons of unsound mind
Deeds by minors
Deeds by persons supposedly single, but in fact married
Liens for unpaid estate, inheritance, income or gift taxes
What This Means To You
The peace of mind in knowing that the investment you've made in your home is a safe one.