What Is Title Insurance And Who Does It Protect: Buyers Or Lenders?

This article covers What Is Title Insurance And How Does It Protect Homeowners

Purchasing title insurance enables “peace of mind” when buying or refinancing a property.

• More importantly, almost all lenders require the purchase of title insurance
• There is no way around it in most cases
• Title insurance may not be the most scintillating topic related to buying a home
• However, title insurance is critical to establishing peace of mind as a homeowner
• Title insurance for property owners called an Owner’s Policy
• It is usually issued in the amount of the real estate purchase
• It is purchased for a one-time fee at closing and is valid for as long as the owner or his heirs have an interest in the property
• Only an Owner’s Policy fully protects the buyer, should a covered title problem arise with the title that was not found during the title search

Hidden Title Problems

Possible hidden title problems can include:

Disputes between prior owners over wills:

• If the property was inherited and then sold by the heirs, there could be other heirs contesting the will and claiming ownership of your property
• Liens for unpaid property taxes
• Liens for contractors who worked on the home but were never paid

Clerical problems in courthouse documents:

• Believe it or not, a simple typo can lead to title claim problems

Fraudulent claims against the property or forged signatures:

• For example, if a group of heirs can’t get a holdout to agree to sell the home, it’s possible that someone will forge a signature on a quitclaim deed

Types Of Title Insurance

Lender’s title insurance and owner’s title insurance

• Title insurance for mortgage lenders title insurance is called a Loan Policy
• As previously state, most lenders require a Loan Policy when they issue a mortgage loan
• The Loan Policy is usually based on the dollar amount of the loan
• Loan Policy protects the lender’s interests in the property should a problem with the title arise.
• It does not protect the home buyer
• The policy amount decreases each year and eventually disappears as the loan is paid off
• Owner’s title insurance is recommended because lender’s insurance won’t protect homeowners personally if the insurance company loses a battle over legal title
• Borrowers will be required to pay for the continued fight over the title and could lose their investment in the property
• Borrowers can purchase basic or enhanced owner’s title insurance, with the enhanced title insurance policy offering more coverage for things like mechanic’s liens or boundary disputes

While the title insurance covers homeowners for things such as mistakes in the legal description of the property or human error, be aware that the title insurance will have some exclusions—particularly in cases where violations of building codes occur after you bought your home.

Shopping For Title Insurance & Reissue Rate

Unlike other types of insurance, title insurance is paid with a single premium at the home closing.

• Home Buyers who are buying a resale or refinancing, they may be eligible for a “reissue” rate
• This could offer a substantial discount off the regular premium
• This is because the title policy is already in effect, and the title research has already been completed
• In some states, title insurance premiums are the same no matter who
• But in the majority of states, mortgage borrowers can save money by shopping around
• Get recommendations from lenders, attorneys, realtors,  and friends
• Be sure to check out the license and reputation of different companies online

Always compare the features of each policy and get adequately covered where the homeowners are protected.