What is Title Insurance? Why Do You Need It?
Title insurance protects against financial loss from title defects or claims against your property. For example, if a third party has a claim on the property that the initial title exam did not reveal, title insurance will protect against it. These claims can pop up at any time, even after owning the property for several years.
What is a Title Exam?
A title exam is a search of the land records and public records to determine the status of the title of the property to be conveyed and / or mortgaged. A title exam is used to identify the records owner(s) of the property in question, as well as to determine if there any liens, easements, and/or other encumbrances on the property. A title exam is also used to identify any potential title defects on the property. Title defects can be found through deeds, mortgages, court judgments, and other legal documents, such as executions or tax liens. These defects are usually detected by title exams and resolved before closing. However, title exams can miss title defects, or title defects, from improperly discharged mortgages to fraudulent deeds, can occur after the property is conveyed and/or mortgaged—and this is where title insurance comes into play.
Types of Title Insurance
There are two types of policies: Owner Policies and Mortgagee Policies (or Lender’s Policies). Owner Policies protect the homeowner and their heirs by providing coverage equivalent to the purchase price. This type of policy is optional, though highly recommended and obtained by the vast majority of our clients, and only needs to be purchased once as it stays with you as long as you own the property. Mortgagee Policies protect the lender and its assigns. Basically, the insurance prioritizes the lender’s claim over any other claims to the property. Every time you take out a mortgage or refinance, you need to purchase lender’s title insurance. While the buyer pays for both policies, they are two separate policies protecting each respective insured’s interest.
Why You Want Title Insurance
While an Owner’s policy doesn’t protect against everything property related, it can prevent many issues, and can be especially useful when you go to sell your property. Owners’ title insurance can cover the costs of paying off undiscovered liens, the expenses associated with defending against a lawsuit associated with a claim on your property, or the settlements for purchasing from a fraudulent seller. For example, imagine you and your husband purchased your dream home. You took out a $500,000 mortgage and sold your previous fixer-upper. In a worst-case scenario, the seller acted fraudulently, and the property legally belongs to someone else. So, if you have an owner’s insurance, you can submit a claim and get the money back that you spent on the home. However, if you do not have an owner’s policy, you are out the purchase price and left without a home (while your Lender is protected via their Mortgagee Policy).
What Ladimer Law Can Do for You
We are experienced, knowledgeable and resourceful when it comes to title insurance and protecting our clients’ interests. Whether you’re buying or selling, it’s important to have an Attorney who understands the real estate process, including the importance of title exams and title insurance.