Why Purchase Title Insurance?
When you buy a home, you are buying the physical property – home and land – and the legal history of the property recorded in the deeds, title, and other legal documents attached to the property. All the legal history becomes yours including any liens, delinquent taxes, covenants, easements, etc. This is where Title Insurance comes into play.
What is Title Insurance?
Title insurance protects the buyers and mortgage lenders from defects or problems with a title, and the seller from financial loss caused by defects or claims, such as previous liens or delinquent taxes, when there is a transfer of property ownership. Title insurance is a one-time, single premium insurance payment paid at the time of closing.
Types of Title Insurance
There are two types of Title insurance policies: a homeowner policy, which provides protection to the new property owner, and a mortgagee (or loan) policy, which provides protection to the mortgage lender. These two policies are separate and distinct. If the lender requires title insurance as a condition of making a mortgage loan, it is the lender who is insured, NOT the homeowner, even though the lender’s title policy is usually paid for by the buyer. If the homeowner wishes title insurance, a separate policy must be purchased. Sometimes if both policies are purchased together, a discount in price is offered.
The Lender or Mortgagee Policy
The Lender or Mortgagee Policy protects the company who provided the loan for the purchase of the home. This policy validates the mortgage as a lien on the title. It protects the Mortgage Lender from loss – up to the value of the loan – should a discrepancy or claim arise.
The Homeowner Policy
The Homeowner Policy protects the homeowner from claims against the property from undisclosed heirs, spousal disputes, previous liens, unpaid back taxes, building violations, etc. This policy validates you as the current, legal owner of the property, that you have the legal right to access your property from a public street or a privately owned point of access, that you can sell your home to another buyer, and that there are no defects, liens, or other encumbrances on the property. It protects your interests and you from loss should a discrepancy or claim arise whether from the past or into the future.