What is Title Insurance and why do I need it?

When you purchase your home, how can you be sure that there are no problems with the home’s title and that the seller really owns the property? Problems with the title can limit your use and enjoyment of the property, as well as bring financial loss. That is what a title search and title insurance are for.

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 approximately 30 years. More than 1/3 of all title searches reveal a title problem that title professionals fix before you go to closing. For instance, a previous owner may have had minor construction done on the property, but never fully paid the contractor. Or the previous owner may have failed to pay local or state taxes. Title professionals seek to resolve problems like these before you go to closing.

• The Owners Policy – Owners Title Insurance, called an Owner’s Policy is designed to protect you from title defects that existed prior to the issue date of your policy. It is usually issued in the amount of the real estate sales price.  Title defects, such as improper estate proceedings or pending legal action, could put your equity at serious risk. An Owner’s Policy provides assurance that your title company will stand behind you — monetarily and with legal defense if needed — if a covered title problem arises after you buy your home. The bottom line is that your title company will be there to help pay valid claims and cover the costs of defending an attack on your title. Unlike other forms of insurance, the original premium is your only cost as long as you own the property. There are no annual payments to keep your owner’s policy in force. The owner’s title policy can also save you money on future lender’s policies, in the event you refinance or sell the property within a limited time period.
• The Lender Policy – There are two types of title insurance: Owner’s title insurance, as mentioned above, and Lenders title insurance, also called a Loan Policy. Most lenders usually require a Loan Policy when they issue you a loan. The Loan Policy is usually based on the dollar amount of your loan. It only protects the lender’s interests in the property should a problem with the title arise. It does not protect the buyer. The policy amount decreases each year and eventually disappears as the loan is paid off.