Protecting your Home Investment
A home is often the largest single investment any of us will ever make. When you purchase a home, you will purchase several types of insurance coverage to protect your home and personal property. Homeowner’s insurance protects against loss from fire, theft, or wind damage. Flood insurance protects against rising water, and title insurance protects against hidden title defects that may threaten your financial investment in your home.
What is Title Insurance
Title insurance is not very well understood, but it can be vital. When purchasing a home, instead of purchasing the actual building or land, you are really purchasing the title to the property – the right to occupy and use the space. That title may be affected by rights and claims asserted by others, which may limit your use and enjoyment of the property or even bring financial loss. Title insurance protects against these types of title defects.
Other types of insurance that protect your home focus on possible future events and charge an annual premium. Title insurance protects against loss from defects that already exist in the title and is purchased with a one-time premium.
Two Kinds of Title Insurance
There are two basic kinds of title insurance:
- Lender’s Coverage,
- Owner’s Coverage.
Most lenders require a Lender’s policy of title insurance as security for their investment in real estate, just as they may call for fire insurance and other types of coverage as investor protection. When title insurance is provided, lenders are willing to make loans collateralized with real estate. The Lender’s policy insures the Lender that there are no judgments, liens, or defects in title that would interfere with, or prevent the Lender from exercising their rights in the event of a default by a Borrower.
An Owner’s policy of title insurance lasts as long the policyholder has an interest in the insured property. A Buyer pays the title insurance premium once, and is protected for the duration of ownership.
What does Your Premium buy?
Issuing title insurance begins with a search of public land records affecting the real estate concerned. An examination is conducted by a title agent or attorney on behalf of its underwriter to determine whether the property is insurable. The examination of documents from a search is intended to fully report any potential defects in the chain of title. Here are some examples of documents that can present concerns:
- Deeds, wills and trusts that contain improper wording or incorrect names
- Outstanding mortgages and judgments, or a lien against the property because the seller has not paid his taxes
- Easements that allow others to have an ability to use part of the property
- Pending legal action against the property that could affect a purchaser; or
Through the search and the examination, title problems are disclosed so they can be corrected whenever possible. However, even the most careful preventative work cannot locate all hidden title defects.
Hidden Defects
In spite of all the expertise and dedication that go into a title search and examination, hidden defects can emerge after closing, resulting in unpleasant and costly surprises. Some examples of hazards include:
- A forged signature on the deed, 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 a fabricated power of attorney; or
- Mistakes in the public records.
Title insurance offers financial protection against these and other hidden defects. The title insurer will incur the costs of defending against an attack on title and will either repair title defects or pay valid claims. All for a one-time premium paid at closing.