Cathy Thomas, Senior Real Estate Paralegal
More than likely, your home is your biggest investment, and title insurance protects your interest in that investment. And yet, many people are unfamiliar with what title insurance is and the benefits it provides them.
Title insurance protects real estate owners and lenders against any property loss or damage they might experience because of liens, encumbrances or defects in the title to the property. While other types of insurance (such as flood, auto or homeowners policies) provide coverage that focuses on possible future events, title insurance protects against loss from hazards and defects already existing in the title to the property.
Examples include:
- Improperly executed documents from a previous sale
- Lien against a previous owner
- Unpaid local, state or federal taxes
- Errors or omissions in deeds
- Mistakes in examining records
- Liens against the property from builders and other professionals, government agencies or financial institutions
- Claims of a share of interest in the property from the heirs of previous owners and other parties
- Risks from forged titles and ownership impersonation
- Threats from undisclosed but recorded easements or lack of right of access
Each title insurance policy is subject to specific terms, conditions and exclusions.
The Title Search
After your sales contract has been accepted, a title professional will search the public records to look for any problems with the home’s title. This search typically involves a review of land records going back many years. More than half of all title searches reveal a title problem that title professionals fix before you go to closing. What happens if a problem arises after you move in?
The Owner’s Title Policy
Sometimes title problems occur that could not be found in the public records or are inadvertently missed in the title search process. To help protect you in these events, it is recommended that you obtain an Owner’s Policy of Title Insurance to insure you against unforeseen problems.
An Owner’s Policy is usually issued based on the amount of the real estate purchase price. It is purchased for a one-time premium at closing and lasts as long as you or your heirs have an interest in the property. Only an Owner’s Policy protects the buyer should a covered problem arise with the title that was not found during the title search. This policy isn’t an automatic part of the closing; you must specifically request one.
Lender’s or Loan Policy
Title insurance for mortgage lenders is called a Loan Policy. Most lenders require one when they issue a mortgage loan. The Loan Policy is usually based on the dollar amount of the loan and it protects the lender’s interest in the property should a problem with the title arise. It does not protect the buyer.
Frequently Asked Questions about Title Insurance
Do I need title insurance?
All home buyers should consider title insurance, whether you’re purchasing an older home or a brand new home. This type of insurance protects you from a wide range of threats that could jeopardize your ownership.
How much does title insurance cost?
The cost will vary depending on the value of your property, but the fee associated is only paid once, and the title insurer will protect you or your heirs, who have an interest in the property.
What does a title search professional look for?
A title search is conducted before the issuance of title insurance, and looks for things such as unreleased mortgages, mistakes in public records, pending legal action against the property, fraud, deeds held by minors and many more.
Do I need a separate title insurance policy for myself if my lender takes out a policy?
Yes, you do. The lender’s policy only protects their interests, not yours. Your need your own insurance to protect your interest.
Should I buy insurance now or wait?
You need to buy title insurance before escrow is funded. The actual policy will be created after final disbursements. You will be required by the lender to purchase a Lender’s Policy, and it’s typically more cost effective to buy the Owner’s Policy and the Lender’s Policy at the same time.
About Williams & Associates
Cathy Thomas is the Senior Real Estate paralegal for Williams & Associates, LLC. Our firm is CERTIFIED ALTA BEST PRACTICE COMPLIANT. We are a Title Agency licensed in the State of Alabama and underwritten by Stewart Title Guaranty Company.
Alabama Agency License Number – 0732808; Alabama Agent License Number – 0714186.
