What is a Title Insurance Policy?

ID-10095172Imagine you’ve just bought your dream home.  You’re finally unpacking boxes and arranging furniture after a lengthy search and closing process.  One day, you receive a notice of a lien on the property that was somehow missed during the title search. A title insurance policy is designed to protect you in situations like this.

How is title insurance different than homeowners insurance?

Title insurance is different than traditional home insurance. Rather than protecting you against loss that might be caused by theft, vandalism, fire, or natural disasters, title insurance protects your investment in the property should a dispute with ownership records, debts of previous owners, or other problems with past transfer of the title arise.

So what exactly is a title?

The title refers to the legal records about the ownership of a piece of real estate throughout the years, documenting the transfer of property rights and loans. Typically, a title company will research these records before your closing. During this research they will review all public records for the property, includng information about deeds, wills, mortgages, tax records, divorce decrees, liens, and court judgments.

Why do you need a title insurance policy?

In most cases, discrepancies or problems with the title can be caught before closing, However,  it is possible some hidden issues could surface after the sale of the property is final. This may include errors in deeds, mistakes or omissions in records, fraud or forgery, liens, or missing heirs.

In these situations, the company that issued the title insurance policy may offer assistance such as organizing your defense or helping to pay the legal costs associated with an attack on your title, as outlined by your policy. This type of policy will typically cover the value of the home at the time you purchased it. Unless you purchase what is known as an increased value endorsement at a later date to cover any appreciation, it will not cover the current value of the home.

How do I make sure I am covered?

In addition to an owner policy for title insurance, designed to protect you directly, most lenders will require you to buy a loan policy before they issue a mortgage. This will cover the principal of your loan should any unforeseen issues with the title arise.

When you buy your home and purchase a loan policy, the title company will also issue you an owner policy, unless you directly reject this option in writing. You can expect to pay a one time premium for your title insurance policy as part of your closing costs. And remember, always make sure you are purchasing your policy from a licensed company. In Texas, the title insurer is typically the same company that is handling your closing. If you need a recommendation for a dependable, sound title insurance company, be sure to ask your Realtor or lender for their advice.

 

Photo: www.freedigitalphotos.net

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