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Title Insurance Overview
What is Title Insurance?
While most people are familiar
with other forms of insurance such as life, health and home not everyone
understands Real Estate Title Insurance, its benefits or if they
need title
insurance.
Prior to the sale or
refinancing of real property, a title insurance agent searches the property
title for adverse matters affecting the transfer of a clean title. The title
insurance agent reviews all liens and potential liens and ensures that other
outside interest in the property are satisfied before the transfer.
The Details
Prior to closing or settlement, the title agent searches the public records
(kept at the courthouse) to determine ownership, encumbrances and any adverse
matters affecting the property title. Recorded instruments such as mortgages,
liens, tax liens, judgments, and bankruptcy filings are researched and noted.
After the research is complete, the title agent will then issue a commitment to
insure the property, subject to certain encumbrances being removed prior to
settlement. Any serious matters affecting the title may be excluded from
coverage. Buyers and lenders understand that certain encumbrances such as
mortgages and taxes will be removed prior to settlement. Other encumbrances such
as easements for utilities may remain. The wordings of the issued policy
controls what is covered.
Types of policies
There are two basic
kinds of title insurance: Owner's and Lender's. With a real estate purchase, you
pay one premium that is all-inclusive for both policies.
- Owner's Policy
This policy is issued when you purchase a property. The premium is based
upon the purchase price or the loan amount, whichever is greater. Your full
coverage will last as long as you or your heirs have an interest in the
property. An owner's policy is not issued when you refinance a loan nor is
it transferable. The policy is enforced from the time you purchase the
property until the time you sell or transfer the property.
- Lender's Policy
This policy protects the lender's investment in your property. However, this
policy insures the lender against title defects that may affect the security
of the mortgage loan, not your investment. The lender's policy is only in
the amount of the mortgage and decreases as the mortgage is paid off.
Therefore, this policy is only valid for the life of the loan. Even if the
mortgage lender has a title policy, you still need an owner's policy to
protect your interest.
Why Do I Need Title Insurance?
Purchasing real estate is
probably the biggest investment you will ever make. With that in mind, you will
probably want to insure it not only to protect it from fire and theft but also
from title defects that may allow someone else to hold a claim to your property.
It is possible for prior owners
and other entities to hold both legitimate and illegitimate claims against your
property. Problems with the title can limit your use of the property and could
lead to a financial loss. The security interest of your mortgage lender can be
put at risk as well. Title insurance protects you and your mortgage company from
potential risks associated with defects in title.
What does this policy protect you and
your lender against?
Your title insurance
protects your property from the following possibilities:
- If a document in the chain
of title is not properly signed, sealed, acknowledged or delivered
- Fraud, incompetence,
forgery, incapacity or impersonation by someone in the chain of title
- A deed signed by someone
who claimed to own the property, but in fact did not.
- A deed signed by someone
mentally incompetent.
- A deed signed by someone
whose power of attorney had expired.
- Federal estate, State
inheritance and/or gift tax liens
- If someone else has an
easement on the land
- Lack of legal right of
access to and from the land
- Errors in tax records
- Title taken as a result of
an improperly probated will.
- Misinterpretation of
wills, deeds and other documents
- Undisclosed heirs / the
appearance of a missing heirs
- Mechanics liens filed by a
proven owner's contractor
- Clerical Error made at the
courthouse when an earlier deed was recorded.
- Instrument signed by a
minor.
- Improper legal
description.
- Forged signatures.
- A married signer who
represented himself as single.
- Confusion of title
resulting from similar names.
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