Most types of insurance focus on possible future events and charge an annual premium. Flood, home and auto insurance are just a few examples. Title insurance protects against hidden defects in the title that occurred in the past, and unlike other forms of insurance is paid with a one-time premium, usually at the time of closing.
What is title? The title to a piece of property is the evidence that the owner is in lawful possession of that property.
What is title insurance? Title insurance protects real estate owners and lenders against any property loss or damage they might experience because of liens, encumbrances or defects in the title to the property. Each title insurance policy is subject to specific terms, conditions and exclusions.
What does it cover? Title insurance protects against claims from defects. Defects are things such as another person claiming an ownership interest, improperly recorded documents, fraud, forgery, liens, encroachments, easements and other items that are specified in the actual policy.
Who needs it? Purchasers and lenders need title insurance in order to be insured against various possible title defects. The buyer, seller and lender all benefit from the issuance of title insurance.
How does the process of getting a title policy begin?
Insuring a home’s title begins with a search of the public land records associated with the property. The title company examines all documents in the public records – deeds, wills and trusts are just a few of many – in order to determine the status of the title. Should title problems appear during the search process, the title company will work with applicable parties to correct them whenever possible to avoid future claims.
How is a title policy created? A commitment for title insurance is issued to the customer for review and approval. All closing documents are recorded upon escrow’s instruction. When recording has been confirmed, demands are paid, funds are disbursed, and the actual title policy is created.
What are the policy types?
Two types of title insurance policies exist: a lender’s policy and an owner’s policy.
A lender’s title policy ensures that should the mortgage not be valid or the lien priority incorrect – in other words, should the mortgage fail to be enforceable – the lender will be indemnified against loss, subject to the terms of the policy. Lenders require the homeowner to purchase a lender’s title policy in order to protect their financial investment in the property.
An owner’s title policy is separate from the lender’s policy and serves to protect homeowners from defects and liens in the chain of title up to the date and time the deed is recorded in the public records. Owner’s title insurance lasts as long as the policyholder or his or her heirs have an interest in the property.