What is title insurance?
A home is often the largest single investment any of us ever make. Title insurance protects against loss of value from defects that may exist in the title, or arguments made by others that such defects exist. Title insurance usually covers and protects against four types of “hidden” risks: errors, liens, ownership claims, and invalid deeds. If a claim is made against your property, the title insurance company will negotiate with the other party to settle the claim, defend you in court if necessary, pay any incurred legal costs, and satisfy any covered claims. Having title insurance can save you time, money, even your home.
Title insurance is the same as any other type of insurance policy. It is a contract of indemnity that is, if the insured under the policy suffers a loss due to an insured risk, then the insurance company indemnifies the insured for that loss. The risks that are insured depend upon what type of policy is being issued. A lender’s policy insures that the lender has first and best lien on the property. An owner’s policy insures that the owner has good and marketable title to the property. In Ohio a policy of title insurance must be based upon an examination of the title to the property. Before issuing a commitment for insurance the title agent examines the title to the property to determine if the seller/owner has good title and to identify any encumbrances, such as mortgages, liens, or easements. The commitment sets out what the agent has found and the requirements that must be met to issue the policy.
Title insurance protects the lender or the owner of real estate in case there are problems or disputes over ownership or claims to the property. If there is a loan secured by real estate, the lender will require the owner to obtain title insurance to protect the lender’s interest. The title insurance which covers the loan amount and protects the lender is called “Lender’s Title Insurance”. “Owner’s Title Insurance” protects the owner’s equity interest in the real estate. There is a one-time premium paid for the owner’s title insurance which protects you for as long as you own the property. The premium rates for title insurance in Maryland are established by the state. So all title insurance rates are the same no matter which insurance company is used.
Title insurance provides the lender and the buyer (if you purchase owners 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 the possibility an error has occurred. If an error has occurred, someone else may have an interest in the property, improvements may encroach on property lines or other similar problems may exist. In these scenarios, if you do not have title insurance you could lose your investment in your home. Lenders require “lender’s coverage” to protect their investment and it only protects the lender. Owners coverage is optional and provides separate coverage for the borrower.
