Understanding Title Insurance
What is Title Insurance? A Title Insurance Policy is a guarantee by a title company that a thorough investigation of the title to the property has been conducted and that you have been notified of any outstanding claims to the property. The title insurance company reports any defects in the title in the form of a Title Commitment so that these matters can be corrected. It is important that you know of all claims on the property and have them resolved and declared removed prior to your taking title to the property.
The Title Commitment will carefully detail what items of encumbrance are not covered by the policy. You can either get these items resolved or bow out of the transaction. Title insurance covers matters that occurred before the policy’s effective date but were discovered later. Your policy will detail what is covered, what is not covered, and the effective date.
Title insurance is issued by the title company when they are certain the property is free from all liens, encumbrances, interest, etc., and the insurance guarantees such. This is so the title can be legally transferred to the buyer to be used as security for the lender’s funds. This is why title insurance is required by the lender. Your lender has an interest in knowing that you and the lender are the only parties with claims to the property.
The title insurance company thoroughly searches the public records to uncover any unpaid taxes, mortgages, judgments against the previous owners, easements, and other court actions or recorded documents that can affect title to the real estate. The insurance also provides protection against any defect in the public record such as forgery, similar names, errors in the records, etc., and protects against any undiscovered or unrecorded claims that may arise in the future.
When title insurance is issued, the tile insurance company accepts the responsibility for any and all claims on the property prior to your purchase if they do not find the claim or call it to your attention prior to your purchase of the property. That responsibility includes defending your title in court, if necessary (all at their expense), or bearing the cost of settling the claim (if it proves valid) in order to protect your title and keep you in possession of your property.
Unlike other forms of insurance, the original premium is your only cost as long as you or your heirs own the property. There are no annual payments required to keep your Owner’s Title Policy in force.
Title insurance protects you twice—It notifies you of claims against the property and insures you against any future claims on hidden items.