Posted almost 8 years ago

Learn How Does Title Insurance Protects You

BREAKING DOWN ‘Title Insurance’

Title insurance protects both real estate owners and lenders against loss or damage occurring from liens, encumbrances, or defects in the title, or actual ownership of, a property. Unlike traditional insurance, which protects against future events, title insurance protects against claims for past occurrences. Such claims include property ownership by another person, fraud or forgery of the title documents, unidentified easements, outstanding lawsuits, liens against the property, et al.

Having no title insurance exposes transacting parties to significant risk in the event a title defect is present. Consider a homebuyer searching for the house of their dreams only to find, after closing, unpaid property taxes from the prior owner. Without title insurance, the financial burden of this claim for back taxes rests solely with the buyer. They will either pay the outstanding property taxes or risk losing the home to the taxing entity. Under the same scenario with title insurance, the coverage protects the buyer for as long as they own or have interest in the property.

How much reassurance do I need?

Banks and insurance companies aren’t supposed to go under, but they sometimes do. If you want to verify that the underwriter issuing the insurance policy is sound, check its financial solvency with ratings companies such as Fitch Ratings, Demotech Inc. or A.M. Best Co.

You can also research the underwriter and title company or attorney online to see what past customers are saying about their services.

Every business has its bad apples. In very rare instances, a title insurance agent has issued policies but pocketed the premiums instead of forwarding them to the underwriter, so consumers weren’t covered.

One easy solution: Contact your underwriter directly and ask for a copy of your policy.

For How Long Is the Property Owner Purchasing Title Insurance Covered?

Indefinitely. The owner’s protection lasts as long as the owner or any heirs have an interest in or any obligation with regard to the property. When they sell, however, the lender will require the purchaser to obtain a new policy. That protects the lender against any liens or other claims against the property that may have arisen since the date of the previous policy.

For example, if the contractor you failed to pay for remodeling your kitchen places a lien on your home, you are not protected by your title policy; the lien was placed after the date of the policy. You will probably be required to get the lien removed before you can sell the property. But in the event the lien hasn’t been removed and a search has failed to uncover it, the new lender will be protected by a new policy.

Title Insurance: Lender’s Policies and Buyer’s Policies

Title insurance is typically a combination of two policies: a lender’s policy and a borrower’s policy. Your lender — assuming you’re taking out a mortgage loan — will require that you buy a lender’s policy (also called a “mortgagee’s policy”) to pay for its legal defense costs and reimburse any mortgage payments you can’t make because you’ve lost the house to someone else’s claim on it.

The lender may also require you to buy an “owner’s policy,” covering your own legal fees and other losses, as yet another step toward protecting the lender’s collateral. Even if your lender doesn’t require you to buy an owner’s policy, you should probably consider buying one anyway.

Why do you need both policies? No preliminary title search (see below to learn about title searches), no matter how complete, can predict when a long-lost relative or heir will turn up or whether paperwork buried for years under a misspelled name will reveal a claim concerning the property. The lender’s policy will kick in to defend such claims and, if all goes well, might resolve the matter against whoever brought it up.

Learn How Does Title Insurance Protects You

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