What is Title Insurance?Title insurance is protection against loss arising from problems connected to the title to your property.
Before you purchased your home, it may have gone through several ownership changes, and the land on which it stands went through many more. There may be a weak link at any point in that chain that could emerge to cause trouble. For example, someone along the way may have forged a signature in transferring title. Or there may be unpaid real estate taxes or other liens. Title insurance covers the insured party for any claims and legal fees that arise out of such problems.
There are two main types of title insurance policies – Owner’s title insurance and Lender’s title insurance. Each provide similar protection and coverage, but they are designed for different parties to the transaction.
Tailored specifically for property owners, an Owner’s title insurance policy assures the new owner that the title to the property is correctly vested with them and that title is free from all defects, liens and encumbrances except those specifically excepted out in the policy’s coverage. An Owner’s Policy provides insurance coverage from losses and damages suffered if for example, the title to the property is unmarketable, if there is no rights of access to the land, if a previous transfer of the property was based on a forged deed, if a will is misinterpreted, public records contain a mistake and many others.
A Lender’s title insurance policy, also called a Loan policy, provides insurance coverage only to the lender in transaction involving a mortgage, deed of trust or other security instrument. Lender policy coverage consists of three basic elements:
- That the lien created by the mortgage/deed of trust is valid and enforceable and in the lien foreclosure position indicated on the policy.
- That there is right of access to the land.
- That title to the property is owned by the indicated borrower, is not subject to any defects, liens or encumbrances and it good and marketable title.
Please note that in a refinance transaction, customarily only Lender’s title insurance is purchased. The borrower is not covered by insurance issued in this situation. An Owner’s policy may be purchased in conjunction with a loan policy in a refinance transaction, but it is not common. Please contact Ravenswood Title if you have any questions about coverage or policy types.
Why do i need title insurance?
The following are examples of potential problems that a properly conducted title search may reveal:
- Mistakes in the public records, including descriptions of property that appear accurate, but contain mistakes.
- Pending legal action against the property that could affect ownership.
- Unreleased mortgages.
- Liens against property because the seller has not paid taxes.
- Fraudulent acts, such as forged deeds, mortgage releases and other documents.
- Misinterpretations of wills.
- Claims by children born or adopted after the date of a will.
- Claims by previously undisclosed heirs.
- Deeds by minors, aliens, unauthorized parties, or persons of unsound mind.
- Administration of estates of persons absent, but not deceased.
- Claims of creditors against real estate sold by heirs.
- An easement that allows construction of a road or utility lines at a later date.
- Mineral or air rights owned by others.
If a property purchased without title insurance protection is affected by any of the above problems, the new property owner would be responsible for dealing with the problem, including potentially having to go to court to fight their own case, hire an attorney, or potentially losing their home.
Title Insurance companies help protect property owners from situations like that. If an owner’s title insurance policy is purchased then the property owner has an ally to help defend against claims that are covered under the terms and conditions of the policy. If a defect in title is covered by the purchased owner’s policy then the owner can file a claim and losses could be completely covered by the title insurance company (subject to all the terms, conditions and limitations as set forth in the title insurance policy and policy jacket.