Q: What is a title?
A: A title is the evidence that the owner is in lawful possession of that property.
Q: What is title insurance?
A: Title insurance protects homeowners and lenders against any property loss or damage they might experience because of liens, encumbrances, or defects in the title to the property.
Q: How does title insurance differ from other insurance?
A: Insurance such as car, life, health, etc., protects against potential future events. A title insurance policy insures against events that occurred in the past of the real estate property and the people who owned it.
Q: What does it cover?
A: Title insurance protects against claims from defects. Defects are things such as another person claiming an ownership interest, improperly recorded documents, fraud, forgery, liens, encroachments, easements, and other items that are specified in the insurance policy.
Q: Who needs it?
A: Purchasers and lenders need title insurance in order to be insured against various possible title defects. The buyer, seller, and lender all benefit from issuance of title insurance.
Q: What is escrow?
A: Escrow refers to the process in which the funds of a transaction (such as the sale of a house) are held by a third party, often the title company or an attorney in the case of real estate, pending the fulfillment of the transaction.
Q: What are the title insurance policy types?
A: The Owner’s Policy insures the new owner/home buyer, and a Lender’s Policy insures the priority of the lender’s security interest.
Title insurance for property owners, called an Owner’s Policy, is usually issued in the amount of the real estate purchase. It is purchased for a one-time fee at closing and is valid for as long as the owner or his heirs have an interest in the property. Only an Owner’s Policy fully protects the buyer should a covered title problem arise with the title that was not found during the title search. Possible hidden title problems can include:
- Errors or omissions in deeds
- Mistakes in examining records
- Undisclosed heirs
Title insurance for mortgage lenders is called a Loan Policy. Most lenders require a Loan Policy when they issue a mortgage loan. The Loan Policy is usually based on the dollar amount of the loan, and it protects the lender’s interests in the property should a problem with the title arise. It does not protect the buyer. The policy amount decreases each year, and eventually disappears as the loan is paid off.