What is title insurance?
Title insurance is required on every mortgage loan, and insures to both the lender and the borrower that they have “clear title” to the property. This means that the records have been checked and it has been determined that there are no outstanding liens against the property which would affect ownership rights (title) in the property. Examples of items that could cloud title and which title insurance covers include old tax liens from previous owners, judgments against the original builder from unpaid subcontractors, and liens placed by municipalities for unpaid utility bills.
Most kinds of insurance are self-explanatory. They protect against losses from events that might occur in the future such as fire, theft or collision. Title insurance, however, is different. Title insurance protects against defects in title that may arise from events that occurred in the past. You should realize whenever you buy property, that the owner who is selling it to you has extremely strong rights, as do his family and heirs. Also, there may be others in addition to the owners who have rights in the property you are going to buy. These may be governmental bodies, contractors, or individuals who have unpaid claims against the property. Anyone who has such a claim is, in a sense, a part owner. The property may be sold to you without the party who has a claim knowing about the sale. And you may know nothing about such a claim at the time you buy. It doesnt matter. These claims may remain attached to the real estate you have purchased. Will you get a clear title? It is of the great
Title insurance provides the lender and the buyer (if you purchase owner’s coverage) with coverage for losses resulting from specific title defects listed in the policy. In cases where land and property have changed hands over time, there is always a possibility than an error may have occurred. If an error has occurred, it may be possible that someone else may be in title to, or have an interest in the property, or that improvements have encroached on property lines or other similar problems may exist. In these cases, if you do not have title insurance you could lose your investment in your home. Lenders require “lender’s coverage” to protect their investment. Owner’s coverage is optional and provides separate coverage for the borrower.
In most real estate closings there are two types of title insurance, an Owner’s Title Insurance Policy and a Mortgagee Title Insurance Policy. The Owner’s Policy is customarily paid for by the seller and insures the buyer that the buyer is receiving good and clear title to the property free and clear of all mortgage liens, tax liens, judgment liens and other title defects. The Mortgagee Title Policy is customarily paid for by the buyer and insures the buyer’s lender that it is receiving a good and valid first mortgage lien against the property.
