What is Title Insurance?

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The purchase of real estate is probably the single largest investment you will make in your lifetime. 

A lender goes to great lengths to minimize the risk of lending you the money you need to buy a home. First, your credit is checked as an indication of your ability to pay back your loan.

Then, your lender goes a step further. The lender makes sure that the quality of the title to the property you are purchasing and which you will pledge as security for the loan is satisfactory. The lender does this by obtaining a loan policy of title insurance. 

The loan policy protects the lender against loss due to unknown title defects. It also protects the lender’s interest from certain matters which may exist but not be knowable at the time of sale.

This policy only protects the lender’s interest. It does not protect you. That is why you need an owner’s policy, which can be issued at the same time as the loan policy.

If a lender has title insurance protection and you do not, what possible danger of loss can you face?

As an example, you have purchased a home for $100,000. You have a down payment of $20,000 and your lender holds an $80,000 mortgage lien. The lender has title insurance coverage protecting its interest up to $80,000. However, your $20,000 is not covered.

What if some matter arises affecting the past ownership of the property? The title insurance company will only defend and protect the interest of the lender. You would then be required to assume the financial burden of your own legal defense. If your defense is not successful, the result could be a total loss of title.

The title insurance company pays the lender’s loss and is entitled to an assignment of your debt. You will be out your down payment, other equity in the property which you have accumulated and your home. And you will still owe the remaining balance on the note.

Title insurance is issued after a careful examination of copies of the public records. However, even the most thorough search cannot absolutely assure that no title hazards are present, despite the knowledge and experience of professional title examiners. In addition to matters shown by public records, other title problems may exist that cannot be disclosed in a search.

Here are just a few of the most common hidden risks that can cause a loss of title or create an encumbrance on title:

• False impersonation of the true owner of the property
• Forged deeds, releases or wills
• Undisclosed or missing heirs
• Instruments executed under invalid or expired power of attorney
• Mistakes in recording legal documents
• Misinterpretations of wills
• Deeds by persons of unsound mind
• Deeds by minors
• Deeds by persons supposedly single, but in fact married
• Liens for unpaid estate, inheritance, income or gift taxes
• Fraud

Title insurance will pay for defending against any lawsuit attacking your title as insured, and will either clear up title problems or pay the insured’s losses. For a one-time premium, an owner’s title insurance policy remains in effect as long as you, or your heirs, retain an interest in the property, or have any obligation under a warranty in any conveyance of it. Owner’s residential title insurance, issued simultaneously with a loan policy, is the best title insurance value you can get.  

By combining expertise in risk elimination at the time of issuing a policy, and protection against hidden risks as long as the policy remains in effect, your title insurer protects against title loss. 

The peace of mind in knowing that the investment you have made in your home is a safe one.