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Title Insurance

This one is complicated and the ride is fairly long; hold on and here we go…

Title insurance is not as well understood as other types of insurance, but it surely is just as important. See, when purchasing a home (or any other real estate), instead of purchasing the building or the land, you are technically purchasing the title to the property – in other words, the right to occupy and use that space. That title could be limited by rights and claims asserted by others, which may limit your use and enjoyment of the property and even bring on financial loss. Title insurance protects against these types of title hazards.

Other types of insurance that protect your home typically focus on the possibility of future events and charge an annual premium for such a protection. Conversely, title insurance protects against loss from hazards and defects that have happened in the past and is purchased with a one-time premium.

Two Kinds of Title Insurance That Can Benefit You in Two Ways

  1. Owner’s Title Insurance
  2. Lender’s (or Mortgagee) Title Insurance

Owner’s Title Insurance is typically a one-time-premium which is paid – usually at the time of the purchase of your home – to insure the legal owner of the insured real estate against defects in the title to their property.  These defects can be defects that are known or not known at the time the owner acquires the property. This coverage protects the owner of the property and lasts as long as you, the policy holder – or your heirs – have an interest in the insured property.  This may even be after you have sold the property.

Most lenders, First Omni included, require mortgagee title insurance as a security for their investment in real estate; just as they may call for fire and other types of insurance as protection against their interest in the investment.

In many states, if you purchase an owner’s policy simultaneously with a lender’s policy, you will get a discounted rate.

What’s the Difference Between Owner’s Title Insurance and Lender’s Title Insurance?

Lender’s insurance coverage insures the lender. Owner’s insurance coverage insures you, the owner.

For example: Let’s say you buy a house for $200,000 and have a mortgage for $160,000. Further, you decide not to buy the owner’s policy and a claim later is made against the property by, say, an heir of a former owner of the property who thinks they still have legal rights to the property, and you are named in the lawsuit.

Right off the bat, you would have to cover your own attorney fees to protect your interests in the property.  If you had an owner’s policy, the title insurance company would cover your attorney fees by using their expert defense attorneys.

Next, in the event that you were to lose ownership or title to the property and must vacate the premises, not only would you lose your $40,000 in equity, but because the bank had a $160,000 lender’s policy, the title company would pay off the mortgage and then come to you (probably via an attorney) to ask you for the $160,000 that they just paid your bank because you didn’t have an owner’s policy.

Whereas, if you had an owner’s policy, they would have paid off the mortgage and write you a check for your equity – up to the original purchase price.

What Does Your Premium Really Pay For?

Title insuring begins with a search of public records affecting the real estate in question. An examination is conducted by the title agent, or an attorney on behalf of the underwriter, to determine whether the property is insurable. The examination of evidence from a search is intended to fully report all “material objections” to the title. Frequently, documents that don’t clearly transfer title are found in the title chain (history) that is assembled from the records in the search. 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 construction of a road or utility line;

–          Pending legal action against the property that could affect a purchaser; or

–          Incorrect notary acknowledgements.

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 hazards.

Your Last Defense against Hidden Title Hazards

In spite of all the expertise and dedication that go into a title search and examination, hidden hazards can emerge after closing, resulting in unpleasant and costly surprises.  Some examples of hazards included:

–          A forged signature on the deed, which would mean no transfer or ownership to the person who thinks they currently own the property;

–          An unknown heir of a previous owner who is claiming ownership of the property (as used in my example above);

–          Instruments executed under an expired or fabricated power of attorney; or

–          Mistakes in the public records.

Title insurance offers financial protection against these and other covered title hazards. The title insurer will pay for defending against an attack on title as insured, and will either perfect the title or pay valid claims; all for a one time charge at closing.  Before you go to closing, be sure to ask about your title protection so as to be certain that you are fully protected.

Please email me or call 800-627-1925 x5144 if you have any questions any of this.

NOTE: This is not to be construed as legal advice as I am not an attorney of law in any state; this is simply fact as I understand it and I would urge you to consult an attorney practicing Real Estate Law in your state.  A special thanks to an article written in 2004 by a localLouisville,KYreal estate attorney, Marc A. Yussman of Goldberg & Simpson PSC as his insights had a lot to do with the content of this blog posting.

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