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What Is Title Insurance (Explained: All You Need To Know)

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What Is Title Insurance

Title insurance is a type of insurance policy protecting property owners or lenders from any issues that may affect the title of a property.

Whenever a property is bought, sold, or financed, a record of that transaction is filed in the public registries.

Typically, buyers and lenders will consult the public registers and archives to determine whether or not there may be issues with the title of a property.

In certain cases, although thorough research may not uncover any particular ownership issues, homeowners or lenders may still remain exposed to title risk resulting from forgeries, filing errors, or even undisclosed heirs in the context of a succession.

Title insurance will therefore help protect lenders and homeowners from any hidden title risks associated with the ownership of a property.

According to Investopedia, the definition of title insurance is:

Title insurance is a form of indemnity insurance that protects lenders and homebuyers from financial loss sustained from defects in a title to a property.
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As you can see from this definition, title insurance helps protect property owners or creditors from losses resulting from defects in the title of a property.

The most common type of defects or issues with the title of a property is:

  • Back taxes owed by a previous owner
  • Liens registered after the closing of the property
  • Succession disputes over a property
  • Erroneous surveys 
  • Unresolved building code violations 

How Title Insurance Works

When buying or selling properties, it’s important to ensure that the title of the property is clear from any issues, defects, or claims.

Generally, homebuyers and lenders will want to have a title company perform a title search on the property question to ensure the title is clear.

If the title search reveals issues with the title of the property, appropriate action and measures can be taken to remedy the defect before closing the transaction.

However, it’s possible that a well-performed title search does not reveal certain defects or issues with the title of the property.

To ensure that both lenders and homeowners are protected against losses or damages resulting from an issue affecting the title of the property, title insurance is taken to provide the necessary coverage.

With the title insurance, a lender or property owner can rest assured that if a lien is registered against the property for any reason, or there’s an issue that is only revealed after the purchase of the property, they are financially protected.

What Does Title Insurance Cover

A standard title insurance policy will provide protection against the following risks:

  • Should another person claim ownership of the property
  • Forged property documents
  • Errors in property documents
  • Unrecorded easements 
  • Due to restrictive covenants by a prior lender 
  • Due to a judgment issued against the property 
  • Claim from a previous spouse 
  • Undisclosed or missing heirs 
  • Unreleased mortgages 
  • Identity theft 
  • Work performed by a contractor 
  • Encroachments 
  • Boundary disputes 

Having title insurance does provide property owners and lenders peace of mind that they will not be exposed to financial losses or damages resulting from defects or encumbrances on the property title.

It’s not mandatory to have title insurance per se but if you are financing the purchase of your property, the lender may impose it as a condition to granting you a mortgage.

A lender’s title insurance will provide title protection to the lender and the owner’s title insurance will provide protection to the buyer. 

By having both the lender’s and owner’s title insurance, all parties in the real estate transaction are protected.

What Is Lenders Title Insurance

A lender’s title insurance is a type of title insurance that protects lenders giving a loan to a homeowner who finances the purchase of a property.

Generally, as part of the condition to grant a mortgage to the borrower, the lender will demand that the borrower take a lender’s title insurance to protect the lender’s interests in the property.

When the property is financed, the lender’s title insurance will need to remain in effect until the mortgage is fully paid off.

This is the most common type of title insurance out there.

What Is Owner’s Title Insurance

The owner’s title insurance is a type of title insurance policy protecting the homeowner or property owner from risks or issues associated with the title of the property.

The owner’s title insurance will remain valid for the entire period of time that the insured remains the owner of the property.

Typically, the owner’s title insurance premium will be paid once at the closing allowing the property owner to benefit from the coverage during the homeownership period.

Usually, the seller of a property will pay for the title insurance to protect the buyer should any issues arise from the title of the property.

How To Buy Title Insurance

The most common way of purchasing title insurance is to initiate the process through the escrow agent or closing agent.

In the United States, there are four major title insurance companies:

  • Fidelity National Financial
  • First American Title Insurance Company
  • Old Republic National Title Insurance Company
  • Stewart Title Guaranty Company

Although there are other insurance providers, the above four underwriters are the main companies used for title insurance.

Your escrow agent or closing agent will do what’s necessary to get the title insurance that you need for the property.

Title insurance can be purchased by the homebuyer in favor of his or her lender or by the seller in favor of the homebuyer.

Another method to purchase title insurance is to shop around by contacting different title insurance providers.

If you do your homework, you may be able to save some premium by finding your own title insurance policy.

Although premiums vary depending on the type of property you are purchasing, your purchase price, the location of the property, and other factors, you can expect to pay anywhere between $500 to $3,500 as a one-time premium for the coverage.

What Is An Alternative To Title Insurance

Is there an alternative to title insurance?

Yes, consider a warranty of title.

A warranty of title is the seller’s guarantee to the buyer that he or she is the real owner of the property and nobody has any claim against the property.

If the seller’s warranty turns out to be false, then the buyer will have legal recourse against the seller.

With this option, the buyer will have to exercise a civil lawsuit against the seller to claim any damages or get a remedy for the defects in the title discovered after closing.

There are certain transactions that will not have any warranty of title such as estate sales or properties sold in auctions.

You will want to ensure you speak with a real estate lawyer or attorney to ensure that you are getting the warranty of title giving you additional protection.

Frequently Asked Questions

Let’s look at some of the most common questions relating to what is title insurance.

What Is Title Insurance And How Does It Work

Title insurance is an insurance policy that can be purchased to protect the homebuyer or lender financing the purchase of a property from title defects.

Title defects are legal issues that can possibly prevent a property owner from transferring or selling the property and exposing them to financial losses or damages.

For example, if you buy a property and then the prior owner’s creditor registers a lien against your home, you will be exposed to the financial loss and until the creditor’s debt is not resolved, you will not be able to sell the property.

What Does Title Insurance Really Cover

When you get title insurance, you get protection against possible financial losses and penalties undisclosed by the seller or discovered after the closing such as:

  • Another person claiming ownership of the property
  • Forged property documents
  • Errors in property documents
  • Unrecorded easements 
  • Due to restrictive covenants by a prior lender 
  • Due to a judgment issued against the property 
  • Claim from a previous spouse 
  • Undisclosed or missing heirs 
  • Unreleased mortgages 
  • Identity theft 
  • Work performed by a contractor 
  • Encroachments 
  • Boundary disputes 

Why Buy Title Insurance

The most common reason why you will need to buy title insurance is that the lender financing the purchase of your property requires that you get a lender’s policy.

A lender’s policy is title insurance protecting the lender for the entire time you owe money to your lender.

Another reason why you may want to buy title insurance is that you, as the buyer, want peace of mind that you will not be exposed to title risk in the future.

In that case, you’ll get an owner’s policy where the insurance protects the buyer from any title issues affecting the property.

Is Title Insurance A Ripoff

When you buy an insurance policy that you never use, you may consider the cost of the insurance as a loss or even the whole thing a ripoff.

However, getting title insurance does bring real value to homebuyers and lenders.

Lenders dealing with thousands of borrowers and properties are statistically bound to come across title defects and issues that manifest themselves after the closing.

As a result, lenders do have a real risk to protect by requiring title insurance.

As for home buyers, even though you do not have any obligation in purchasing title insurance, getting one will provide you and your family with peace of mind against financial losses, especially if your budget is tight when buying your property.

What Are The Different Types of Title Insurance

There are two types of title insurance: 

  • Owner’s title insurance policy
  • Lender’s title insurance policy 

The owner’s title insurance policy provides protection to the new home owner against title defects.

Generally, it’s purchased by the seller in favor of the buyer.

The most common type of title insurance is the lender’s title insurance policy protecting lenders against encumbrances, issues, or defects in title.

How Much Does Title Insurance Cost

The actual cost of title insurance will vary depending on many factors but can range between $500 to $3,500 as a one-time charge.

The factors affecting the cost of your title insurance are:

  • The state where the property is located
  • The value of the property 
  • Type of property purchased 
  • Issues discovered during the title search 

What Is A Title Insurance Policy Takeaways 

So there you have it folks!

What is title insurance and why do I need it?

What is title insurance for?

In a nutshell, a mortgage title insurance or home title insurance is a type of insurance policy providing homeowners or lenders protection against risks associated with the title of a property.

When you buy a property, you may not realize that pre-existing issues could affect the title of your property such as unpaid property taxes, fraud, forgery, or even a claim from a prior creditor, previous owner’s spouse, or succession dispute.

By purchasing title insurance, you pay a one-time premium and you get insured against any ownership issues that you may discover after the closing.

There are two types of title insurance, (1) owner’s policy protecting property owners from title issues, and (2) loan policy protecting lenders from title issues.

To get title insurance, you’ll first need to have a title company perform a title search for you to ensure that you are getting a clear title.

If issues are found, you may either resolve them or get title insurance to protect you against any possible losses associated with the issues discovered.

In cases where there are too many defects in a title of the property, insurance providers may simply decline coverage.

Many consider title insurance as a ripoff or as an unnecessary expense.

However, having the peace of mind that you will not be exposed to any liens, owe back taxes, or get involved in a lawsuit due to your title may well be worth the title insurance cost.

I hope I was able to explain to you what is home title insurance, what is an owner’s title policy, what is lender’s title insurance, when it’s needed, what it covers, how it works, and why it’s important.

Good luck with your title insurance!

Let’s look at a summary of our findings.

What Is Title Insurance On A Home

  • Title insurance provides you protection against financial loss, damages, or legal expenses should there be a defect in the title of your property 
  • Lenders and property buyers can get title insurance to protect their interests in the property (loan policy for lenders and owner’s policy for buyers)
  • Typically, there is a one-time premium charged for title insurance at the closing of the transaction covering the lender or buyer (or both) during their entire ownership period
  • It’s not mandatory to purchase title insurance but it may be imposed by your lender or buyers can purchase it to get peace of mind against title defects discovered after their purchase 
Bad title 
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Clear title 
Closing disclosure 
Cloud on title 
Endorsement options 
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Restrictive covenant 
Special warranty deed 
Unrecorded deed 
Warranty of title 
What is a title search 
What is an easement 
What is an encumbrance 
What is an insurance premium
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