Title Insurance FAQ
Here are some answers to frequently asked questions and helpful advice on title insurance and why you need it. If you have a more detailed question or require additional information, contact us.
- What is a Title?
- Do I really need title insurance?
- Title insurance seems like just one more expense I have to pay when I buy or refinance a home. What exactly does it cover?
- Having a serious problem with my title seems rather remote. Is insurance really necessary?
- I paid for a lender’s title insurance policy. Does that protect me as the homeowner?
- I purchased title insurance when I bought my home a year ago and I am now refinancing my mortgage. Why do I need to pay for title insurance again when I know there are no problems with my title?
- How much does title insurance cost?
- Are all title insurance rates the same? How can I be sure I am getting the best deal?
1. What is a Title?
A title is the evidence, of right, that a person has to the ownership and possession of land. It is possible that someone other than the owner has a legal right to the property. If that right can be established, this person can claim the property outright or make demands on the owner as to its use.
2. Do I really need title insurance
Most definitely! Title insurance is ’peace-of-mind’ insurance. It guarantees the policyholder that their property is owned by them free of any defect, encumbrance or claim of another, and that they will continue to own that property without interruption or risk of loss. Many consumers erroneously believe that if a thorough title search is conducted on a piece of property then title insurance is not needed. The purpose of title insurance, however, is not to insure one for known defects but to insure for unknown defects. Unknown defects can include mistakes in the public record, previously undisclosed heirs claiming to own the property, forged deeds, and numerous other potential defects that could be next to impossible to uncover during an extensive title search. So, title insurance not only helps to remove the flaws that show, but also insures against those that don’t. While title claims are rare, they tend to be very large monetarily due to the value of the underlying real estate. In addition to protection from financial loss, title insurance pays the cost of defending against any covered claim. If you are a commercial property owner, title insurance is ‘investment’ insurance. Youve worked hard and put your money into real estate. The last thing you want to find out is that there is a setback restriction or easement that runs through the center of the property and you are now prohibited from building that apartment complex, office building, strip mall, or shopping center that you have spent months or even years developing.
3. Title insurance seems like just one more expense I have to pay when I buy or refinance a home. What exactly does it cover?
Title insurance protects against problems affecting the title to your home, possibly your most valuable asset. There are two types of title insurance – a lender’s policy, and an owner’s policy. When you obtain a loan, (and a refinance is a new loan), the lender will require that you purchase a lender’s title policy to protect their investment in the property. Owner’s title insurance is optional, but it protects the homeowner by paying claims and legal fees should a problem arise.
4. Having a serious problem with my title seems rather remote. Is insurance really necessary?
According to a 2005 member survey by the American Land Title Association (ALTA), title problems were found in 36 percent of all residential real estate transactions (new and resale homes, and refinances). There might be problems from unpaid child support, alimony, parking tickets, taxes or subcontractors that have caused a lien to be filed on your home. Other things that can cloud title that are not so easy to detect include forged signatures in the chain of title, recording errors, title search errors, undisclosed easements and title claims by missing heirs and/or ex-spouses. For this reason, title insurance is highly recommended.
5. I paid for a lender’s title insurance policy. Does that protect me as the homeowner?
No. A lender’s policy protects the lender’s interest in the property should a problem arise. It does not cover the owner’s equity in the property, and will not pay the homeowner’s legal expenses if there is a problem. Only an owner’s title insurance policy will protect the homeowner.
6. I purchased title insurance when I bought my home a year ago and I am now refinancing my mortgage. Why do I need to pay for title insurance again when I know there are no problems with my title?
As mentioned previously, when you obtain a new loan, (and a refinance is a new loan), the lender will require lender’s title insurance. Even if you recently purchased your home there are some problems that could arise with the title. For instance, you might have incurred a mechanic’s lien from a contractor who claims he/she has not been paid. Or you could have had a judgment placed on your house for unpaid taxes. The lender wants to make sure the title to the property they are financing is clear. If it has been less than five years since you obtained the previous policy, ask if you qualify for a “reissue” or refinance rate – a discount – on your new lender’s title insurance. You will not need to purchase new owner’s title insurance when refinancing. Owner’s title insurance is purchased for a one-time fee at the original purchase and lasts as long as you and your heirs have an interest in the property.
7. How much does title insurance cost?
The premiums charged for the issuance of title insurance policies vary with the policy amount and the type of policy issued. The premium for title insurance is only paid once when the real estate transaction is closed, there being no recurring fee thereafter. In many areas, premiums charged on subsequent policies on the same property may be reduced, depending generally upon the time elapsed between issuance of the previous policies and the nature of the transactions for which the policies are issued. Most of the charge to the customer relates to title services rendered in conjunction with the issuance of a policy rather than to the possibility of loss due to risks insured against. Accordingly, the cost of service performed by a title insurer relates for the most part to the prevention of loss rather than to the assumption of the risk of loss. Claim losses that do occur result primarily from title search and examination mistakes, fraud, forgery, incapacity, missing heirs and escrow processing errors.
8. Are all title insurance rates the same? How can I be sure I am getting the best deal?
Title insurance rates in most states are set by the state’s Department of Insurance, the state agency charged with regulating title companies. Depending where you live, it pays to investigate your options carefully in order to obtain the most complete coverage.