What is title insurance?
When you buy your new home, you are purchasing the title to the property, which is the right to occupy and use the land. Unlike most other types of insurance coverage, which charge you an annual premium to protect you from future events, title insurance protects you from hazards already existing in the title to the property. In addition, title insurance requires only a one-time premium payment.
What are the types of title insurance?
There are basically two types of title insurance; a Loan Title Insurance Policy (“Lender’s Policy”) and an Owner’s Title Insurance Policy (“Owner’s Policy”). Your Lender may require that you purchase a Lender’s Policy as part of the financing to purchase our home. The Lender’s Policy protects only the Lender and insures the Lender that it has a valid first mortgage on your property. This policy does not protect your ownership interests in the property.
To protect yourself, you must purchase an Owner’s Policy, which insures that you have marketable title to own your own property. Coverage under an Owner’s Policy lasts as long as your or your heirs have an interest in the property, and you only have to pay a one-time premium payment at the time you purchase your new home.
What does title insurance cover?
In spite of all the expertise and dedication that goes into a title search and exam, hidden defects may not be apparent from the public records and can emerge after you buy your home. Some examples of hidden defects include:
- A forged signature on a deed in the chain of the title, which would mean no transfer of ownership to you.
- An unknown heir of a previous owner who is claiming ownership of the property.
- Instruments executed under an expired or fabricated power of attorney.
- Mistakes in the public record.
- Unrecorded grants of rights to possession and easements.
Why should I buy title insurance?
Title insurance offers financial protection against these and other covered title defects. If you purchase an Owner’s Policy and have a covered claim, he title insurance company will pay the legal fees, whether or not the covered claim is valid. In addition, if the claim is valid, the title insurance company will pay the amount, up to the policy limits, to clear up the problem. If you do not have an Owner’s Policy, you may be held responsible for the value of the hidden defects and will have to pay your own legal fees, even if the claim against your property turns out to be without merit.