A home is usually the largest single investment any of us will ever make. When you purchase a home, you will purchase several types of insurance coverage to protect your home and your personal property. Homeowners insurance or hazard insurance protects against loss from fire, theft or wind damage. Flood insurance protects against rising water. And a unique coverage known as title insurance protects against hidden title hazards that may threaten your financial investment in your home.
Title insurance is not as easily understood as other types of insurance, but is just as important. When purchasing a home, instead of purchasing the actual building and land, you are really purchasing the title to the property, and the right to occupy and use the space. That title may be limited by rights and claims asserted by others, which may limit your use and enjoyment of the property and even bring financial loss. Title insurance protects against these types of hazards.
Other types of insurance protect your home from possible future events and charge a premium. Title insurance, on the the other hand, protects against loss from hazards and defects that potentially already exist in the title and is purchased as a one-time premium.
Two kinds of title insurance benefit you:
1. Owner’s coverage
2. Lender or mortgage protection
Owner’s title insurance lasts as long as you, the policyholder (or your heirs), have an interest in the insured property. This may even be after you have sold the property. Most lenders require mortgagee title insurance as security for their investment in real estate.
What does your premium pay for?
An important part of title insurance is its emphasis on risk elimination before insuring. This gives you, as the policyholder, the best possible chance for avoiding title claims and loss. Title insuring begins with a search of public land records affecting the real estate concerned. An examination is conducted to determine whether the property is insurable. The examination is intended to fully report all “material objections” to the title.
Frequently, documents that don’t clearly transfer title are found in the “chain,” or history that is assembled from the records in a search. Here are some examples of documents that can present concerns:
> Deeds, wills and trusts that contain improper wording or incorrect names
> Outstanding mortgages, judgments, or liens against the property because the seller has not paid taxes
> Easements that allow construction of a road or utility line
> Pending legal action against the property that could affect a purchaser
> Incorrect notary acknowledgments
Hidden title hazards
Hidden title hazards can emerge after closing, resulting in unpleasant and costly surprises. These potential hazards include:
> A forged signature on a deed, which would mean no transfer of ownership to you
> An unknown heir of a previous owner who is claiming ownership of the property
> Instruments executed under an expired or a fabricated power of attorney
> Mistakes in the public records
Title insurance offers financial protection against these and other covered title hazards. The title insurer will pay for defending against an attack on title as insured, and will either perfect the title or pay valid claims.
information courtesy of Stewart Title
