WHY DO YOU NEED TITLE INSURANCE?
To guard possibly the greatest investment you will ever make – the investment in real estate. A lending institution goes to great lengths to diminish the risk of loaning money for the acquisition of real estate. First, credit is reviewed as an indication of the borrower’s ability to repay the loan. Then, the lender seeks a guarantee that the value of the title to the property to be attained and which will be pledged as security for the loan is acceptable. The lender does this by obtaining a loan policy from the title insurance company.
THE LOAN POLICY DOES NOT PROTECT THE BORROWER
The loan policy protects the lender against loss due to any title defects undisclosed in the title policy. It also shields the lender’s interest from certain matters which may exist, but may not be known at the time of the sale. This policy only protects the lender’s interest. It does not protect the home owner. In order for the real estate purchaser to be covered they need to purchase an owner’s policy. An owner’s policy, which can be issued at the same time as the loan policy, will give the home owner the same type of protection the loan policy affords the lender.
WHAT IS DANGER OF LOSS?
If a lender has title insurance protection and the owner does not, what type of loss exists? Assume a property is purchased for $500,000. The buyer is putting down $100,000, and getting a mortgage for $400,000. The lender receives a title policy protecting the lender’s mortgage up to $400,000, but the buyer’s down payment of $100,000 is not covered. If a lien or encumbrance affecting the past ownership of the property comes to light the title insurance company would have to defend the interest of the lender. However, the purchaser would have to take on the monetary burden of his or her own legal defense. If the defense is not successful, the result could be a total loss of title. The title insurance company would then be responsible to pay the lender’s loss and is permitted to take an assignment of the mortgagor’s debt. The buyer would lose their down payment, as well as possibly any other equity in the property that may have accumulated, and also the entire property, all while balance on the note is still due.
HOW CAN THERE BE A TITLE DEFECT IF THE TITLE HAS BEEN SEARCHED AND A POLICY ISSUED?
Title insurance is issued once a vigilant inspection of the public records has been performed, yet even the most detailed search cannot absolutely guarantee that no title risks are present, even with the knowledge and experience of professional title examiners. In addition to matters exposed by public records, other title complications may occur that cannot be unveiled in a search.
WHAT TITLE INSURANCE PROTECTS AGAINST?
Here are just a few of the most common hazards that can cause loss of title or generate an encumbrance on title: False impersonation of the proper owner of real estate Forged deeds, releases, or other public records Unnamed or absent heirs Documents signed under unacceptable or expired power of attorney Errors in recording legal documents Misinterpretations of wills Deeds by persons in an incapacitated state Deeds by minors Deeds by persons allegedly single, but in fact married Liens for unpaid inheritance, estate, income or gift taxes Fraud
WHAT SECURITY DOES TITLE INSURANCE PROVIDE AGAINST IMPERFECTIONS AND HIDDEN DANGERS?
Title insurance will compensate for protecting against any lawsuit arguing the title as presently insured, and will either clear up title issues or pay the insured’s losses. For a one-time premium, an owner’s title insurance policy stays active as long as the insured, or the insured’s heirs, hold an interest in the insured property, or have any responsibilities under a contract in any conveyance of it. Owner’s title insurance, issued at the same time with a loan policy, is the greatest title insurance value a property owner can receive. What This Means to You The peace of mind in knowing that the asset you’ve acquired in your real estate transaction is a safe one.