How does title insurance work?
Let’s start with the basics. Title insurance covers unforeseen problems with your title that could prevent you from selling your property in the future, or worse, force you to forfeit it. For example, a tax lien issued by the government and not properly addressed by a previous owner can come back to bite you even years later and block any sale of your property.
Fortunately, title insurance covers both old and newly discovered problems like this one. In case something does go wrong down the road, simply file a claim with your title insurance company to have them handle everything for you—these companies are experienced in this type of work and very good at it.
So who exactly is covered by these policies? As long as they’re listed on the policy itself, both buyers and lenders are covered by most standard policies (there are different kinds). The buyer will receive coverage until they sell their home or transfer their ownership of it; lenders typically receive coverage until they’re repaid their loan through refinancing or a sale of the home.
What is the difference between an abstract and a policy?
This is an easy question to answer. Think of it like this: If you have a question about the title to your property and you need help right away, which would be more useful? An abstract or a policy?
An abstract is simply a summary of all the records on file at the court house related to your property. It’s essentially a check list of everything that has happened in regard to that piece of real estate, typically concerning the prior thirty years.
A title insurance policy, on the other hand, is issued by an underwriter who has searched those same records and determined that there are no problems with the ownership rights to your property. Rather than just telling you what’s in the records, which is what an abstract does, a policy tells you whether or not there are any problems with them (or if there are any problems with anything else that affects your ownership rights). And if there are problems, it will typically pay for someone else to fix them so they don’t become your problem!
Why do I need title insurance?
You may wonder why you need title insurance in the first place. After all, you paid a lot of money for your home. The honest answer is that title fraud and unknown liens on your property can happen as easily as someone stealing your wallet. Title insurance protects against these types of incidents by covering the costs incurred to remove fraudulent liens, repair damaged titles, and defend against such claims in court if necessary.
Title insurance also provides coverage in other situations that can complicate the ownership of a property, especially ones involving easements. Easements are legal documents granting certain rights to access or use another person’s property for specific purposes, such as utilities or an exterior staircase. A title search will reveal any known easements affecting a parcel of land, but there may be unknown easements existing prior to the conveyance of title which were not recorded or included among public records at the time of sale. If this occurs later on, it can cause undesirable situations for homeowners like having utility workers accessing their property without permission or neighbors using easements without paying any compensation whatsoever.
Is there more than one kind of title insurance?
There are two main types of title insurance, but the most common is lender’s title insurance. It’s typically required by the lender and is usually purchased from the lender’s title company.
Owner’s title insurance (also called owner’s policy) protects the homeowner and must be purchased separately. This coverage can provide peace of mind as it runs for as long as you or your heirs have an interest in your home.
Who is responsible for paying for title insurance?
- Who is responsible for paying for title insurance? The buyer pays for the owner’s policy, and the seller pays for the lender’s policy. If the lender and owner are the same, then they would pay both.
- What does title insurance cover? It covers any problems that arise from a previous sale or ownership of your home.
These common misconceptions about title insurance mean that many people don’t put enough time into their research when it comes to choosing their insurer. But you don’t have to be one of these people! In our next section, we’ll talk about how you can make sure you get the best price on your title insurance so you can save money while still getting excellent service.