What is Title Insurance
What is Title Insurance?
Sources state that title insurance is a type of insurance that protects mortgage lenders and/or homeowners against claims questioning the legal ownership of a home or property (i.e., the title to the property) 1.
If disputes over title ownership arise after the purchase, the insurance policy pays for any legal fees to resolve them 1. Unlike other types of insurance that help cover future mishaps, title insurance is designed to protect the policyholder from any past title discrepancies from the seller or previous owner that might be uncovered during or after the purchasing process 1.
In any real estate transaction, the title company runs a public records search to ensure that the home being purchased is free and clear of any liens or ownership disputes. This process confirms the seller’s legal right to sell the home. While this process usually goes smoothly, title insurance comes into play when disputes arise 1.
Title insurance covers any underlying issues with a home or property’s title that the title company may have missed during the home-buying process 1.
Here are some of the more common title issues:
• Title forgeries
• Back taxes
• Filing errors
• Unknown heirs to the estate who claim ownership
• Inconsistent or conflicting wills
• Liens, commonly from unpaid home equity lines of credit (HELOCs) or contractor bills
• Undocumented easements
There are two types of title insurance: lender’s title insurance and owner’s title insurance (also called buyer’s title insurance).
They both provide the same kind of protection but cover different parties who have financial stakes in a property 1.
A lender’s title policy is designed to protect the financial institution providing your mortgage from title claims that would put their stake in your home at risk. Lenders almost always require borrowers to purchase title insurance on the lender’s behalf as part of the loan-approval process. It’s considered a closing cost 1.
The owner’s title policy is designed to protect the homeowner in case of any claims against their ownership of the home. In most cases, owner’s title insurance is not required in a home purchase, but it is recommended. It can be paid for by the seller at closing, so you may want to negotiate for it when you are purchasing a home 1.
The cost of title insurance varies depending on where you live and what type of policy you buy. The average cost of lender’s and owner’s policies ranges from $500 to $3,500, depending on location and purchase price 2. It’s important to note that while you pay for it only once, it provides coverage for as long as you own your property 2.