What is Title Insurance For a Home?
When you sign a contract to purchase a home, it usually takes between 30-60 to complete the transaction. During this time, usually referred to as the escrow or closing period, many activities occur to secure a loan and to transfer the property from the seller to the buyer.
What is a Title Search?
One of these steps is called a title search. A title search is conducted to determine who owns a property. A property's title records the history of ownership about a property and identifies any parties that have an interest in a property. A clear title indicates that the current seller has full rights to sell the property.
A title company or their representative usually conducts a review of a title. These people are looking for any notations in the title's history that would suggest problems in clear ownership of a property. Any problems identified in a title are commonly referred to as "defects" or "cloud on title."
Defects or Clouds on Title
There are many causes of defects or clouds on title. These defects or clouds could have occurred with the current owner or with any previous owner of a property. For example, two owners prior to the current owner, a husband may have sold a home without the permission of his estranged wife. The "wife," in this example, may have some claim of ownership to the property since the property was sold without her permission. There may be other problems in a title such as forged or missing documents, unpaid taxes, liens, judgments, or other claims against ownership to the property not uncovered in the title search or review of public records.
In most cases, a title search does not reveal any problems with a title, and if problems are identified, they are resolved before the property changes hands. However, there are occasions that claims against a property are filed after the new owner takes ownership of a property. So this creates a problem for the new owner and their lender because other parties are asserting an ownership interest in the newly acquired property. This is the type of situation that title insurance was designed to address.
How is Title Insurance Relevant?
Title Insurance is an insurance policy issued by an insurance company to cover beneficiaries if there are claims against a title. If defects are found after a buyer closes escrow, then a title policy usually covers the expense to remedy the defect (if possible), or pays the insured for any loss due to the defective title.
If you get a home loan to purchase a property, most lenders will require that you purchase title insurance for them at your expense. This will cover the lender against any claims filed against the title of a property. Lenders usually require this coverage. Title Insurance companies also offer coverage for the homebuyer, but this is optional and is separate from the coverage required by lenders.
As with any other form of insurance, different companies cover different items and charge different rates. Be sure you understand what your policy covers, since each company will have their list of included and excluded coverage items. You should also know that you might be able to get a lower rate on title insurance if the current home seller provides you a copy of their title policy. In these situations, you may be able to use the same insurance company and request a "reissue rate."
Title Insurance Cost
The cost for title insurance is usually charged as a one-time fee and itemized as part of your closing costs. While rates vary from company to company, they generally range from 0.5% to 1% of the mortgage amount. Be sure to get several bids when comparing title insurance.
A title insurance policy will provide you or your lender
protection against defects in a title. There are separate policies for both the
lender and the homebuyer. The lender usually requires the homebuyer to purchase
title insurance for the lender and pay the expense. The owner's coverage is
usually optional. The title insurance industry is a competitive business so it's
best to compare rates and coverage benefits between companies. Title insurance
is a complex decision, so be sure to talk to your real estate agent or attorney
before making any decisions about title insurance.
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