FAQ's About Title Insurance
1. What is title insurance and why do I need it?
A Title Company provides title insurance services to real estate buyers and sellers, builders, developers, lenders, brokers, realtors, and many others who have an interest in the title to real estate. These parties are concerned that their rights and interests in the title to real property are clear at the time the property is purchased, that the transfer is handled correctly, and that their interests in the title to the real property are safeguarded to the maximum extent possible. Title insurance is the application of the principles of insurance to risks which are present in all real estate transactions.
2. What types of policies are available to me as a homeowner?
For the average property owner, there are two different types of title insurance policies that you need to be aware of:
- Owner's Title Insurance Policy, insuring and protecting the property owner against defects in their title to real estate.
- Mortgagee's Title Insurance Policy, insuring and protecting the property's lender against defects on the title to real estate, thereby protecting their own loan interest.
3. How does title insurance protect against hidden risks and defects?
Title insurance defends you in a lawsuit attacking your title, and either corrects the title problem or pays the insured's losses up to the face amount of the policy. The policy also protects you after you sell the property for defects occurring prior to your ownership that cause a loss to a purchaser if the title was warranted by you. For instance, a seller may forge a signature of another, creating a loss for a new owner. Other problems that can occur are fraud, improper court proceedings, missing heirs, incompetency of previous seller(s), recording mistakes, and unfiled liens.
4. How long am I covered by this policy?
An owner's title policy insures you for as long as you and your heirs remain in ownership or have a liability by virtue of warranties to title given by you to a purchaser. A mortgagee title policy protects the lender until the loan is paid off.
5. If my lender is getting title insurance, why do I also need a policy? Aren't we both covered under the same policy?
An owner's title policy insures the purchaser that he owns the property subject to listed exceptions. A mortgagee's title policy insures the lender that the lien they hold is a valid lien against the property. The mortgagee's policy protects the lender's interest only so long as the loan is outstanding and only in the amount of the balance of the loan at any given time. The owner's policy protects you up to the face amount of the policy during your ownership and after you have sold the property if you have warranted the property to your subsequent buyer. The policies perform different functions; therefore, it is not possible for one policy to cover both the purchaser and the lender.
6. How much does title insurance cost?
An owners title policy is a one-time cost paid only when you buy your home. While the title industry is regulated by maximum rates for a policy that a company can charge (called promulgated rates) title companies are allowed to discount their rates and often do when the market is competitive. A company's fees above and beyond the policy can vary overall by hundreds of dollars for what can be the very same item or service
A mortgagee policy is purchased every time you take a mortgage or refinance a mortage on your property. It is a policy that protects the lender, and as long as you provide a copy of your owners title policy, title companies will generally offer you a reissue credit on future mortgagee policies. It doesn't matter whether or not the same title company did your owner's policy or your last closing, any company competing for your business will offer this discount to you. This is very important when you are paying refinance costs and trying to put yourself into a better mortgage with the least amount of cost to you.
7. What can the title company you choose do for you?
First, the title company will examine the public land records to investigate information surrounding title to the property you are purchasing. That search of land records will determine:
- That the seller of the property is, in fact, the legal owner and that all such owners are party to the contract.
- That the "estate" or degree of title, which you have agreed to buy, is currently and accurately vested in the seller.
- The presence, if any, of open mortgages, judgments, or other liens, which must be satisfied before a "clear" title can be conveyed to you.
- Existing restrictions, easements, or rights of way for roads, public utilities, etc., which may limit your rights to use of the property, or grant rights to others who are not owners.
- The status of property taxes and other public or private assessments on the insured property.
These matters of title will be reflected in a commitment for title insurance, which will be issued to the mortgage lender and to you at or near the time of closing.