What is Title Insurance
So I feel like I may have talked about what Title Insurance was before, but I can’t seem to find it. There are so many costs when someone buys and sells real estate and people may try to cut corners in ways. Well, Title Insurance isn’t one of the ways you can save money. It is mandatory and for good reason. Let’s start with its definition: Title insurance is a form of indemnity insurance predominantly found in the United States which insures against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage loans. There are two types of policies which are: owner and lender. I will talk about what the difference in these two types are. Lender or mortgagee title insurance protects the lender/investor as security for making mortgage money available to a buyer. It does not protect the buyer. Owner’s title insurance protects the buyer, lasts as long as you, the policyholder has an interest in the insured property.
When you buy a piece of land, you don’t get handed the piece of land, you are given title. Title is the owner’s right to possess and use the property. How a home is titled can vary. For example, title might be held as tenants in common, as joint tenants, there may be a right of survivorship, or there might be a life estate in the home. In addition, as you might imagine, there are many uses for land and rights can be given or sold for such uses. Someone other than the person you think of as owner of the property itself may own mineral, air, or utility rights on the property. A bank with a mortgage on the property owns an interest in the property, as does someone who has done work on the house and filed a lien against it. The government may also have liens against the property for unpaid taxes, and the city may have an easement giving it the right to string utility lines across the front yard.
To protect your self, you want to know what owner’s title insurance is. To protect yourself, you want to buy an owner’s title insurance policy, which protects your financial investment in the home. You can usually shop for your title insurance provider separately from your mortgage. When you purchase your home, you receive a document most often called a deed, which shows the seller transferred their legal ownership, or “title” to their home, to you. Title insurance can provide protection if someone later sues and says they have a claim against the home from before you purchased it. Common claims come from a previous owner’s failure to pay taxes or from contractors who say they were not paid for work done on the home before you purchased it. This type of policy protects the equity you have built up in your home.
The next one is lender’s title insurance. When you purchase a home, which I have said several times in the past, you are most likely going to secure financing. That means you will have a lender. Most lenders require you to purchase a lender’s title insurance policy. This type of policy protects the amount they lend you. The other one is lender’s title insurance. Lender’s title insurance protects your lender against problems with the title to your property. An example would be if someone tries to sue to say they have a claim against the home. Lender’s title insurance does not protect your investment in the home which is also known as equity. If someone sues with a claim against your home, you are the first person responsible. The lender’s title insurance policy only covers claims that impact the lender’s loan.
The long and short of it all is that Title insurance is not required by law in all states, but if you decide to purchase a home, you won’t secure financing without it. Lenders are not in the practice of taking any chances that they don’t have to.