When a private party purchases a home, he or she acquires title to property. If there are problems with the title, the owner’s rights may be limited or subject to challenge. The lender’s rights to the property, which is used as collateral in the mortgage, may also be limited. Protections against challenges to the owner’s and the lender’s rights to title are protected by a special type of insurance, called title insurance. Unlike insurance that protects against future hazards, like fire or flood, title insurance is purchased one time and provides protection against past events or claims that the title to the property is defective.
There are two types of title insurance policies: One type protects the lender, the other protects the home buyer.
The lender’s policy is issued in the amount of the loan and declines in value as the loan is paid off by the borrower.
The homebuyer’s policy is usually issued in the amount of the real estate purchase and lasts as long as he or she has an interest in the property.
Before issuing a title insurance policy, the title company will conduct a thorough examination of all records relating to the property and the current homeowner. They will research documents filed with the local country recorder, as well as court records and state files. This examination often reveals errors in records that have been filed by various parties claiming an interest in the property.
For example, documents describing wills or trusts may contain misspellings, or incorrectly describe the relationships between the parties who hold title. There may be a state or Federal tax lien field against the property for taxes owed by the exiting owner. A contractor who performed work on the property may have filed a lien when they did not receive timely payment.
All of these claims must be thoroughly researched and resolved before the title insurance company issues a policy and declares that title can be safely transferred.
Title insurance is typically paid for by the buyer, unless an agent has negotiated that the seller pay all or part of the closing costs.
A thorough title search and examination may take several weeks to complete before the title insurance company issues a policy.
Are All Title and Escrow Companies Alike?
The products and services they offer are generally uniform from company to company, but title and escrow companies differ in the experience they have and the level of service they provide.
When buying a new property, a buyer should make sure that his or her investment is protected. One must be sure that the property is free of outstanding liens and interest claims by another party. The title insurance provider should have the experience and resources to conduct a thorough search of the property’s history, the attention to detail to completely resolve outstanding title issues, and the financial resources to back up their research with a policy that guarantees the buyer’s interest in the future.