What Is Title Insurance?
Insurance is one of those costs that no one likes to pay. But we pay insurance premiums to be able to sleep well at night, without major financial concerns. There are many types of insurance products including home (hazard insurance), health insurance, life insurance, flood insurance and title insurance.
What is Title Insurance?
Although title insurance is normally issued at every closing, many buyers are not aware of what it is or how it works. Knowledge is power, and learning more about Title Insurance can save you hundreds of dollars at closing and even worse headaches and costs if title problems arise later.
TITLE INSURANCE protects the owner (or the lender) in case there is a TITLE DISPUTE, which is an argument over who holds the right to the land.
Some common Title Insurance disputes may include issues like:
- Undisclosed heirs
- American Indian tribal rights
- Contractor's (mechanics) liens
- Tax Liens
- Property boundaries and encroachments
When we purchase home or car insurance, we are trying to MITIGATE FUTURE RISK (we are trying to minimize the financial risk that could arise from a FUTURE event).
When we purchase TITLE INSURANCE we are trying to ELIMINATE THE RISK for things that ALREADY HAPPENED that we DON'T KNOW ABOUT YET.
When you finance the purchase of real estate, you will be REQUIRED by your lender to purchase LENDER’S TITLE INSURANCE at closing, to cover the lender’s collateral up to the amount that you are borrowing from them.
Your initial equity (down payment), and any future appreciation of the property is not protected unless you get an OWNER’S POLICY also. This is an OPTIONAL coverage, it is a ONE-TIME premium that you would pay at the closing and will then protect you from any claims against the Title of the property for as long as you own the home.
Title insurance PREMIUM RATES are regulated by the Department of Insurance.
Closing ATTORNEYS are normally the agents for TITLE INSURANCE COMPANIES. As title insurance agents, closing attorneys earn a commission on any title insurance policies they issue.
The same way we always recommend that our clients buy flood insurance (even if it is not required) and earthquake coverage, we also ALWAYS recommend that our buyer clients purchase the Owner’s Title Insurance coverage, which is normally not very expensive.
Many times Buyers can choose between TWO TIERS of Owner’s Title Insurance Coverage: The STANDARD policy and the EXPANDED policy, which provides much better coverage (including SURVEY issues) for a small additional cost difference in premium. In some instances, it may be more cost-effective and efficient to get the expanded title insurance coverage rather than having to hire a surveyor to shoot a new survey. Your closing attorney can explain these options to you before the closing.
What does title insurance cover?
Title insurance covers only REAL PROPERTY (not personal property). It provides FINANCIAL PROTECTION against loss or damage resulting from:
- DEFECTS or FAILURES of TITLE
- Enforcement of a LIEN EXISTING at the time of issue, but NOT DISCOVERED in the Title Search.
What does it NOT cover?
- Government RIGHTS
- Police Powers
- Eminent Domain (for example the municipality has the ability to take a portion of your front yard to build a road)
- Property Taxes
- Specific Exceptions & Exclusions
Closing attorneys normally hire a TITLE COMPANY or an ABSTRACTOR to go to the county courthouse and research:
- All DEEDS, CONVEYANCES OUT, LIENS, ENCUMBRANCES (like mortgages, lis pendens, judgements, tax liens, property taxes, mechanics liens, UCC’s, etc.
- PLATS & SURVEYS for setbacks, cemeteries, access, easements, encroachments, driveways, walls, lakes, rivers, ponds, fences and utility lines.
If the closing attorney finds any ISSUES or DEFECTS, the attorney can determine if they can provide MARKETABLE TITLE or INSURABLE TITLE and/or what exceptions the policy may note.
Like with any insurance policy, it is important that you are WELL INFORMED as a consumer and that you ask the right questions. Very few buyers actually read the fine print, but If the details are important to you, request a copy of the POLICY JACKET (not the Dec Page) which clarifies WHAT IS NOT COVERED by the policy.
If you have any additional questions about title insurance or the home purchasing process, please send us an email to firstname.lastname@example.org or call 843-900-0155 to talk with one of our agents.