Real Estate Title Insurance & its Importance

Real Estate Title Insurance & its Importance

Real estate title insurance is a form of insurance meant to protect an owner’s or lender’s financial interest in real property against loss as a result of title defects or liens. It can defend against a lawsuit, or reimburse the insurance holder for the financial loss caused by the lawsuit (up to the dollar amount provided by the policy). It protects the buyer in case there are old loans on the property, or easements that were not disclosed. Title insurance can be purchased to insure any interest in any real property, including a lease or life estate. Not having title insurance could cost you a lot of money. It can save you from having to pay for previously undiscovered liens. Without title insurance, the owner can be held liable and financially responsible for any liens that are discovered later on, even if they have no relation the property’s current owner.

There are two types of title insurance. An owner’s policy assures the purchaser that the title belongs to the purchaser and that the property is free from encumbrances or liens. It also covers loss if there is no right of access to the land. Title insurance can protect against forged deeds, wills, or releases, undisclosed or missing heirs, mistakes in recording legal documents, deeds by persons of unsound mind, deeds by minors, deeds by people who claim to be single, but are actually married, and fraud. The liability limit of the policy is usually the purchase price paid for the property. Additional coverages can be added or taken away.

A title company is required to disclose where all the easements on a property are located. If a company does not disclose an easement on a purchaser’s property and that purchaser discovers it later on when he or she tries to put in a swimming pool, the title company must fix it because there is devaluation on the property. The title company did not disclose there are back taxes owed on a purchaser’s home, they would have to step up and pay the taxes.

A lender’s policy is used if the buyer plans on using a mortgage loan for his or her property purchase; it protects the lender’s interest in the property. Usually, these policies are written to protect the lender for the amount of the mortgage.

You do not have to pay separate title insurance premiums. In fact, typically, the two policies are actually purchased and paid for together for a discounted price. The reason for this is because title companies only have to search their records once, rather than twice, and the second policy does not increase risk too much. The premium for both policies purchased together can be 30%-40% cheaper than if they were purchased separately.

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