Title insurance is a type of insurance that protects buyers and lenders against financial losses stemming from defects in a property’s title (the legal ownership record). Here’s how it works and why it’s important:
What is a Title?
- A title represents your legal right to own and use a piece of real estate.
- It includes a history of all previous owners and any claims or liens against the property.
Risks of Title Defects:
Even with careful research, hidden title problems can emerge, like:
- Unknown liens: Unpaid taxes, mortgages, or judgments against the property.
- Boundary disputes or encroachments: Conflicts with neighbors over property lines.
- Forgery or fraud: Falsified documents in the chain of ownership.
- Unknown easements: Rights others may have to use parts of your property.
- Errors in public records: Clerical mistakes affecting your ownership rights.
How Title Insurance Protects You:
- Title Search & Examination:
- Before issuing a policy, the title insurance company meticulously researches the property’s history in public records.
- They aim to identify any potential defects, liens, or other issues.
- Protection from Financial Loss:
- If a title defect arises after you buy the property, your title insurance covers:
- Legal fees to defend your ownership rights in court.
- Costs to clear the title issue.
- Reimbursement up to your policy limit if you lose ownership or suffer financial loss due to a covered defect.
Types of Title Insurance:
- Owner’s Policy:Â Protects the property buyer (homeowner).
- Lender’s Policy:Â Protects the mortgage lender’s interest.
Why You Need It:
- Peace of Mind: Title defects can cost you your home or a huge amount of money to fix. Title insurance shields you from this massive risk.
- One-Time Premium: Paid at closing, it provides protection for as long as you own the property.
- Lenders Usually Require It: Most lenders mandate a lender’s policy, and it’s wise for buyers to get an owner’s policy too.