If you've ever purchased a home before, you may already be familiar with the title insurance. But if this is your first home loan or you are refinancing, you may be wondering why you need another insurance policy.
The answer is simple: The purchase of a home is most likely one of the most expensive and important purchases you will ever make. You, and especially your mortgage lender, want to make sure the property is indeed yours: That no individual or government entity has any right, lien, claim, or encumbrance on your property.
The function of a title insurance company is to make sure your rights and interests to the property are clear, that transfer of title takes place efficiently and correctly, and that your interests as a homebuyer are fully protected.
Title insurance companies provide services to buyers, sellers, real estate developers, builders, mortgage lenders and others who have an interest in real estate transfer. Title companies typically issue two types of title policies:
1) Owner's Policy. This policy covers you, the homebuyer.
2) Lender's Policy. This policy covers the lending institution over the life of the loan.
Both types of policy are issued at the time of closing for a one-time premium, if the loan is a purchase. If you are refinancing your home, you may have an owner's policy that was issued when you purchased the property. In either case, we'll only require that a lender's policy be issued. You can choose whether or not to obtain an owner's policy.
Before issuing a policy, the title company performs an in-depth search of the public records to determine if anyone other than you has an interest in the property. The search may be performed by title company personnel using either public records or, more likely, the information contained in an abstract of title.
After a thorough examination of the records, any title problems found must be cleared up prior to your purchase of the property or your refinance. Once an owner's title policy is issued, if any claim which is covered under your policy is ever filed against your property, the title company will pay the legal fees involved in the defense of your rights. They are also responsible to cover losses arising from a valid claim. This protection remains in effect as long as you own the property. The same is true of a lender's policy, except that only the lender is protected, not you and the policy is only good for as long as the loan is unpaid.
The fact that title companies try to eliminate risks before they develop makes title insurance significantly different from other types of insurance. Most forms of insurance assume risks by providing financial protection through a pooling of risks for losses arising from an unforeseen future event, say a fire, accident or theft. On the other hand, the purpose of title insurance is to eliminate risks and prevent losses caused by defects in title that may have happened in the past.
This risk elimination has benefits to the homeowner, the lender and the title company. It minimizes the chances that adverse claims might be raised, thereby reducing the number of claims that have to be defended or satisfied. This is supposed to keep costs down for the title company and the premiums low for the homebuyer.
Buying a home is a big step emotionally and financially. With owner's title insurance you are assured that any valid claim against your property will be borne by the title company, and that the odds of a claim being filed are slim indeed.
