Alyssa Lane
Title insurance is a type of insurance that covers mortgage lenders or homeowners against losses related to ownership of the property. It is a policy that covers third-party claims on a property that don't show up in the initial title search and arise after a real estate closing. It protects against financial loss and related legal expenses in the event there is a defect in the title to the property that is covered by the policy. When you take out a mortgage, one part of your closing costs will be title insurance. The premium is a one-time charge, and the policy protects the lender. You can also purchase owner's title insurance to protect yourself, which covers you and your heirs for as long as you own the property.
| Characteristics | Values |
|---|---|
| Type of insurance | Title insurance |
| What it covers | Third-party claims on a property that don't show up in the initial title search |
| Who it covers | Mortgage lenders or homeowners |
| When it is required | When buying a home or refinancing a mortgage |
| Cost | $500–$3,500 |
| How to find a title insurance company | Online search of the ALTA Registry for companies in your state |
| Examples of title insurance companies | Fidelity, First American, Old Republic, Stewart |
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What You'll Learn
Owner's title insurance
When you buy a home, you receive a document called a deed, which shows that the seller transferred their legal ownership, or "title" to their home, to you. However, there may be instances where someone else might have ownership rights that you weren't aware of, which could come to light at a later date. This is where owner's title insurance comes in.
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Lender's title insurance
When buying a home, it is common to encounter title insurance as a requirement. This type of insurance is designed to protect the lender's interests in the event of issues with the property's title. The title refers to the legal ownership of the property, and issues can arise if someone else has a claim to the property or if there are outstanding debts associated with it. Lender's title insurance provides protection against these potential problems.
In addition to lender's title insurance, there is also owner's title insurance, which is optional but recommended for added protection. While lender's title insurance covers the lender's loan, owner's title insurance protects the buyer's investment in the property. By purchasing both policies, homeowners can ensure that they have comprehensive coverage against any potential title issues that may arise.
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$19.95 $19.95
Third-party claims
Owner's title insurance is optional but protects the buyer against potential title issues that may arise after the home purchase. It guarantees the deed to the home is being sold by the correct person so that no one else can claim it. It also helps new homeowners avoid unexpected expenses such as balances owed on previous mortgages, unpaid taxes, and contractors' liens discovered after closing.
Before issuing a title insurance policy, title companies check for defects in the title by examining title plants (a database of property information) or public records, including deeds, mortgages, wills, divorce decrees, court judgments, tax records, liens, encumbrances, bail bonds, and maps. The title search determines who owns the property, what outstanding debts are against it, and the condition of the title.
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Title defects
- Liens: A lien is a legal claim to the property related to outstanding debt. A mortgage is a type of lien, and other examples include unpaid real estate taxes, HOA assessments, and court judgments. Even if a lien is for the debt of a prior owner, the lien stays with the property until the debt is paid and can become a problem for future owners.
- Invalid deed signatures: A deed may be invalid if it was not signed by a person authorized to do so, or if it was signed by mistake or by someone lacking the mental or legal capacity to sell property.
- Unknown encumbrances: These are rights that others may have to your property or limits on how you can use it that may not have been revealed during a title search.
- Document errors and boundary disputes: Errors in public records or issues with the property's boundaries can lead to disputes and claims.
- Fraud and forgery: While less common, these issues are costly and can involve criminal impersonation of the owner or fraudulent activities that affect the validity of the sale.
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Title search
A title search is conducted by a title company to ensure that the seller has the legal right to transfer the title to the buyer. This process involves examining public records, including deeds, mortgages, wills, court judgments, tax records, and liens, to determine who owns the property, what outstanding debts are against it, and the condition of the title. The results of this search are provided to the buyer, along with a preliminary title report or commitment.
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Frequently asked questions
Title insurance is a policy that covers mortgage lenders or homeowners against losses related to ownership of the property.
Title insurance covers mortgage lenders or homeowners against losses related to the title, or ownership of the property. For example, if there's a hidden lien against the property, title insurance will cover it.
Lender's title insurance covers the mortgage lender and is typically based on the amount of the loan. Owner's title insurance covers the homeowner and is in effect for as long as they or their heirs own the property.
You can find a title insurance company by conducting an online search of the ALTA Registry for companies in your state. Major title insurers include Fidelity, First American, Old Republic, and Stewart.
