Understanding Title Insurance

Loan secured using real estate.

Title insurance is a unique form of insurance that provides coverage for future claims or future losses due to title defects which are created by some past event (i.e., event prior to the acquisition of the property). These are defects that are not known at the time of sale or the issuance of the title insurance policy.

There are two types of title insurance policies: an Owner's Policy and a Lender's Policy.

An Owner's Policy is usually issued in the amount of the real estate purchase. It is purchased for a one-time fee at closing and lasts for as long as the owner or their heirs have an interest in the property. This policy protects the owner against any title loss, which ensures the value of the property. Only an Owner's Policy protects the buyer should a covered title problem arise.

A Lender's Policy, on the other hand, is issued to the mortgage lender. It protects the lender's interest in the property until the borrower pays off the mortgage. In case the borrower's title is challenged, the lender is assured of the priority of its lien, and the mortgage can be paid off before any proceeds go to others.

The concept of "Chain of Title" is also crucial in understanding title insurance. The Chain of Title is the sequence of historical transfers of title to a property. It runs from the present owner back to the original owner of the property. A clear chain of title is important for the sale and purchase of a property. During the title search, if any gaps or issues are found in the chain, they must be resolved before the property can be sold.

In conclusion, title insurance is an essential aspect of real estate transactions. It provides peace of mind to both buyers and lenders, ensuring that the property they are investing in is free from hidden legal troubles. It is a one-time purchase that provides coverage for as long as the policyholder or their heirs own the property.