What is title insurance?
Title insurance insures against financial loss caused by defects in title to real estate. Title insurance companies defend against lawsuits attacking the title, or in the case of a covered loss, reimburse the insured up to the policy limit.
What kinds of defects does title insurance protect you from?
It protects you against loss due to title defects, liens, or other similar matters. Title insurance protects you from claims of ownership by other parties. It protects you against losses from problems that arose before you bought the property. The title company will defend you in court if there is a claim against your property, and will pay for covered losses.
Is Title Insurance required?
On a cash sale, title insurance is not necessarily required however it would be foolish to have it. If a claim were to ever arise, you would have zero protection. Claims against a property can quickly add up and wreak havoc on a new property owner financially. A Title insurance policy is designed to protect you against any defects or claims that may arise long after your purchase is completed. If you are financing a property, your lender will require you to buy a Loan Policy of Title Insurance to protect their interest.
How long does it last?
A loan policy lasts until the loan is paid off. An owner’s policy lasts as long as you or your heirs own the land. It also may provide warrantor’s coverage after you no longer own the property, depending on your policy provisions. Policy language has changed over time, so read the continuation of coverage provisions in your policy carefully to determine coverage terms.
Is it like homeowners insurance?
No, title insurance is different from other types of insurance. It does not insure against fire, flood, theft, or any other type of property damage or loss. It protects against losses from ownership problems that arose before you bought the property, but were not known at the time you bought the property. It does not guarantee that you will be able to sell your property, or borrow money on it.
What’s the difference between a title commitment and a title policy?
The title commitment comes before closing; the title policy is issued after closing. The commitment says that a title company is willing to issue title insurance under certain conditions and if the seller fixes certain problems. The policy provides coverage for the property.
What does the title commitment do?
The title commitment lists any potential issues, exclusions, or exceptions. It alerts the buyer to issues that exist and could cause problems in the future. It does not guarantee that there are no current issues or that none will arise in the future. You should discuss how to clear potential issues with the title agent. You may wish to review potential issues with a lawyer.
Read the title commitment carefully as these items can become exclusions or exceptions under Schedule B of your policy. Exceptions and exclusions are items not covered by the policy.
What types of polices are there?
There are two types of policies, owner’s policies and loan policies.
- Owner’s PolicyThe owner’s policy protects you against losses from ownership problems that arose before you bought the property, but that were not known at the time you bought the property. For example, you could lose title to your property due to fraud, errors or omissions in previous deeds, or forgery of a previous deed. The owner’s policy protects the buyer from the covered risks listed in the policy.
- Loan PolicyThe loan policy is issued to the mortgage lender. It protects the lender’s interest in the property until the borrower pays off the mortgage.
Why do I need a loan policy?
Most lenders will require a loan policy as a condition of the mortgage. The policy will repay the balance of your mortgage if a claim against your property voids your title. A loan policy covers up to the amount of the principal on your loan.
Why does my owner’s policy cost more than the loan policy?
When you buy an owner’s policy and a loan policy at the same time, the loan policy is issued at a discounted price. If you decide not to purchase an owner’s policy, you will pay full price for the loan policy.
Do I get a discount if I refinance?
Yes, you may get a discount commonly referred to as a re-issue credit. The premium discount varies, based on the number of years since the original purchase and is based on the original amount of coverage you had obtained.
Do I get to pick my own title company?
You may choose any title company you want; you don’t have to use a company selected by a real estate agent, builder, seller or lender.
Section 9 of the Real Estate Settlement Procedures Act (RESPA) prohibits sellers from conditioning the home sale on the use of a specific title insurance company. You may contact the Consumer Financial Protection Bureau, who regulates RESPA, if you have a complaint.