Title Insurance: Explanation of Title Insurance

You have just purchased your new house and moved in your family, pets and all your stuff. Just as you are starting to settle in, someone comes along and proves he is the rightful owner of your property and you have to leave.

Title insurance will protect you and your mortgage company from any claims against your property. If a title claim is made against you, the insurance company will negotiate a financial settlement and even defend your title in court, if necessary. Your insurance company will cover all legal costs, including any settlement or judgment associated with the claim.

Title insurance is divided into two policies: one for the property purchaser and one for the money lender:

  1. The owner’s policy protects the purchaser by guaranteeing that the title to your new property is free of past errors and liens before, and after, your closing date. A title is deemed marketable (sellable) after a reasonable search is performed.
  2. The lender’s policy is a guarantee to your mortgage company that the insurance company has done a thorough inspection of the property’s title history and there are no encumbrances on the title. In the event that this turns out to be false, the insurance company promises to cover the cost of the loan.
Title Insurance: Explanation of Title Insurance

A property’s title history is usually stored and administered at your local county office. Each time a title is transferred it is recorded at the government office presiding over the property. The land on which your house sits on has probably gone through many hands since the U.S. government first claimed it during the formation of the country. Depending on the age of your house and the number of owners, its history could be long and complicated.

It is possible for your title to become unmarketable at any time while you own it. Your title insurance will not protect you from any liens you have incurred. For example, a contractor can put a lien on your home if you fail to pay him for his work. You will not be able to sell your home until you make payment arrangements and have the lien lifted from your home. Liens will also damage your credit rating.

Your title insurance will assure many contingencies, including a long-lost heir or a zoning irregularity. Title insurance will make sure the title to your house is in order and will protect you from being ousted from your home.

Title Insurance: What Does Title Insurance Cover?

Land ownership is how the U.S. was formed and this country has been around for quite a few years now. In that time, your land has probably changed hands many times. Title insurance will protect you if someone from your property’s title history comes forward and claims he is the rightful owner of your property.

Your insurance company will help you clear up any problems found while investigating the chain-of-title documentation at your property’s county office, as well as any discrepancies in marriage and death certificates, and its tax payment history. Your insurer will find and clear up any issues pertaining to:

  • Easement, encroachment, property line, access and right-of-way disputes.
  • Building permit violations.
  • Unpaid liens or other encumbrances including taxes, mortgage, court judgments, leases or contracts, and homeowner or condominium fees.
  • Structural damages resulting from local water or mineral development.
  • Uncovering covenants, conditions and restrictions (CC&R) enforced in a planned neighborhood, and help you decide if you are willing to abide by their rules.

After you purchase your home, your title insurance will protect you from many fraudulent, illegal and erroneous titles, deeds and mortgages, due to:

  • A title appropriated by duress.
  • Improper legal proceedings during the title transfer, including an invalid signature, recording or delivery by a notary public or other government official.
  • The title being signed by someone who is bankrupt.
  • Errors in divorce settlements and documentation.
  • Under age title ownership.
  • Someone with the same name as you making a new title and assuming ownership.
  • The title being signed by a person legally deemed to be mentally incompetent.
  • Wills or trusts with conflicting provisions.
  • A child born after a will has been executed claiming his share in your property.
  • A federal estate tax lien when transferred by an heir.
  • A missing or presumed dead heir reappearing and claiming his share in your property.

A title is meant to protect the current owner and those who succeed him who have been given a legal right to the property through a fiduciary or as an heir. If a title dispute does arise, your title insurance will provide you with an attorney and financially cover you for all related legal defense expenses, including any settlement or judgment if the title claim is legitimate.

Title Insurance: What Does Title Insurance Cover?

When your property’s chain-of-title breaks, your title insurance will fix it.

Title Insurance: FAQ About Title Insurance?

Q: What is title insurance?
A: Title insurance is protection for you and your insurer from any claims of ownership in the future.

Q: Is title insurance mandatory?
A: Yes, if you are purchasing your home with a mortgage or through refinancing. No, if you are buying your home with a one-time cash payment.

Q: What should I do if a claim is made against me?
A: Contact your title insurance company immediately. Provide written notice and all documentation related to the claim. Your insurer will begin negotiations or legal proceedings. Your insurance company will pay for all defense costs and any settlement or judgment if the claim is valid.

Q: How much does title insurance cost?
A: Your title insurance premium depends on the value of your home and how much coverage you want. Your premium is a one-time payment made during purchase proceedings and insures your title for the lifetime of your ownership. Your title is automatically transferred to your heirs in the event of your death.

Q: What is the difference between an owner’s policy and a lender’s policy?
A: The owner’s policy will cover you, the purchaser, for the value of your home. The lender’s policy will cover your money lender for the value of your loan minus your down payment and mortgage payments.

Q: Can I choose my own title insurance company?
A: Yes, in fact it is highly recommended you shop around and find an insurer that will provide coverage that suits your individual needs.

Q: What would deem a title unmarketable?
A: Any kind of ownership dispute can keep you from being able to resell your home. An unmarketable home may have a lien, zoning issues, title documentation and transfer procedure errors and omissions, fraudulent titles or an unpaid court judgment.

Q: What does the title insurance company do to confirm the clearance of a property title?
A: Your insurance company will investigate and solve any discrepancies in chain-of-title documentation by examining zoning maps, marriage, divorce, estate and all other title ownership documentation. These files are usually stored at the county office that holds jurisdiction over your property.

Q: What is not covered by title insurance?
A: Your title insurance does not cover any future easement issues or liens. Policies vary between insurance companies, so shop and compare standard policies, add-ons and exclusions to find a good fit for you and your property.

Title Insurance: Is Title Insurance Required?

Owning your own home and property satisfies a basic human need. When someone challenges that, your basic instinct is to protect your home. Title insurance one of the best weapons you can have in your home defense arsenal.

You are not legally obligated or otherwise required to purchase title insurance in all property-buying scenarios. You are not required to purchase title insurance if you pay the full price of your home in one payment. In this case, you do not require the assistance of a money lender, eliminating their requirement for a title guarantee through the investigation of a property title’s history.

If you do not need title insurance to purchase your home, you may need one to refinance or sell your home.

  • When refinancing, you are going to be working with a money lender who requires title insurance for the value of your refinancing loan.
  • During the course of your ownership, your property may become unmarketable due to a chain-of-title dispute, a zoning issue or a lien. In order to make your home marketable again, you can prove marketability with title insurance once you have cleared up any issues.

Title insurance is required by most money lending institutions if you are buying your home with a mortgage or through refinancing. It is mandatory because your money lender wants to protect his investment. On the lender’s title policy, the balance of your loan is protected until you have paid off your loan.

It is highly recommended you purchase a title insurance policy in either scenario in order to protect your property ownership and home equity. It is less expensive to purchase the owner’s policy and lender’s policy at the same, from the same insurance company, and during purchasing proceedings. Your title insurance has a one-time premium and will protect you for the full value of your house and for as long as you own the house. In the event of an untimely death, your home is automatically transferred to your heirs.

If you are in a position to decide whether or not you should buy title insurance, then your answer should be based on the level of risk you are willing to take. If your home is new or has only had one owner, then the risk factor is low; if your home has a rich and varied history, then the risk of a title dispute is high.

Title Insurance: Does Title Insurance Benefit The Purchaser?

Purchasing a home is personal and emotional for the buyer and his family. It is important to protect your home and family as best you can and title insurance is one way to do just that.

Title insurance can benefit you, the purchaser, by allowing a third party, the insurer, to investigate your property’s title history without prejudice or emotional attachment. Your insurer will investigate, find and clear up any past title errors, zoning conflicts, grievances or unpaid bills that will affect your ownership or even your desire to buy the house.

Title insurance came into being to protect the purchaser. The problem was brought to the public’s attention in the 1800s when such a claim was made against a homeowner and he took the issue to court. Acts were passed and legislation was formed after realizing the abysmal mess of property ownership documentation as well as the virtually ineffective laws governing property transactions. The U.S. implemented a filing system for titles and deeds as well as investigation procedures.

Chain-of-title documentation is public record and can be accessed by anyone. When an insurance company investigates a property’s title history, the procedure must be followed:

  1. A title search should be done before each purchase.
  2. An examination of the indexes at the local government office must be performed in accordance to state regulations.
  3. The title transfer instruments, such as a private person, business or government body, must undergo a thorough documentation inspection for inconsistencies, errors, fraud and restrictions.
  4. A determination must be made regarding the ability of the title’s status to stand up under current property ownership laws.

Title insurance and a title investigation are also valuable documentation for commercial property buyers. If you are a business person who makes million-dollar property purchases, you really want to be sure that no one will come along and simply take away your property. Title insurance will protect you from any historical claims, as well as financially cover you for any associated legal fees, settlements or judgments. There is also an indemnity for any losses you may incur up to the maximum amount predetermined in your policy.

Title insurance will financially protect the purchaser from most property title issues. However, there are many exceptions. As the purchaser, it is your responsibility to carefully examine your policy as well as the title investigation results to make sure you are purchasing a property with a clear title.

Title Insurance: Is Title Insurance Overpriced?

Title insurance is, unfortunately, expensive. It is also usually mandatory in order to procure a loan to buy a house. Is it overpriced?

Title insurance is one of the biggest expenses in the house-buying process. Your one-time title insurance premium can range anywhere from $500 for a house with a value of approximately $100,000, to $5,000 for a house worth about $1,000,000. Your premium is based partly on the housing market in your area and partly on the title insurance rate, which is regulated by some states. Depending on your state, and even where in your state you live, you may pay a higher or lower premium.

Although title insurance protection has been in place for about 150 years, there has not been sufficient improvement in the title filing system nor in the laws. Not all states regulate their premium rates and some regulate their rates in favor of the insurers. When you purchase a property, you usually base your decision on the characteristics of the property, not on who has the lowest title insurance premium. The best advice is to ask a non-invested third party to help you find reasonable title insurance in your property’s jurisdiction.

Insurance companies battle each other for the chance to sell you their title insurance policy because of the huge commissions. There have been, and still are, court cases involving the underhanded and even fraudulent practices of some insurance companies in their quest to sell you their title insurance.

One very important piece of refinancing information you need is this: if you decide to refinance your mortgage, your title insurance should be much less than what you paid when you initially purchased your house. A title insurance policy premium with a reissue rate should be less than half of what you initially paid. An unscrupulous insurance agent may not inform you about the lower reissue rate because the majority of what you pay him will go directly into his pocket as a sales commission.

There are ethical title insurance providers available and they put your money to good use. Your insurer invests your money in the title’s historical investigation, which reduces the chance of them paying for expensive legal proceedings in the future.

The insurance company’s risk huge legal expenses if they fail to uncover an issue that surfaces years later. You run a huge risk in losing your home as well. A high risk means a high price.

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