In the transfer of real property, title insurance is a way to protect buyers and lenders from losses or damages as a result of liens, encumbrances, or defects in the chain of title or ownership. There are two types of title insurance: owner’s title insurance and lender’s title insurance.
The cost associated, also known as the premium, is paid on a one-time basis, typically at closing. The amount of insurance under an owner’s title policy will be the purchase price paid by the buyer. The amount of insurance under a lender’s title policy will be the amount of the buyer’s mortgage.
A seller’s clear title—or an understanding of why the title is not clear—is necessary to close any real estate transaction. The title company will do a deep search of the title records to uncover anything that might prevent the buyer from receiving a clear title. If title defects or clouds on the title are found, the title company will require documentation be filed in the title records to remove the defect or cloud.
Title insurance is a valuable tool because it results in greater protection of what is likely the single largest investment someone will make in their lives.
Q: I already have homeowner’s insurance. Do I still need title insurance?
These two types of insurance are very different. Homeowner’s insurance provides coverage against fire, weather, flood, theft, and other kinds of physical damage to property. Title insurance protects against loss caused by a legal defect in or cloud on the property’s title.
To put it another way, traditional homeowner’s insurance protects against future events, such as fire and storms, and title insurance protects against title issues that arose or were created in the past. Only an owner’s title policy fully protects the homebuyer should a covered title problem arise.
Q: What specific things will title insurance protect against?
Unless excepted from coverage, a title policy will protect against loss due to:
- Gaps in the chain of title
- Back taxes
- Liens such as mortgages, judgments and tax liens
- Easements
- Forgery and fraud
Q: Do I have to buy title insurance?
If you are getting a loan to finance your purchase, your lender will require the purchase of lender’s title insurance to ensure that it has the first mortgage or lien. But there are other very good reasons to buy owner’s title insurance for yourself to protect your ownership interest. These reasons include gaps in the chain of title, defective administration of probate estates of prior owners, claims against the property made by an unknown heir of a prior owner, the deed by which you acquired title is defective in some way, liens on the property from prior owners, and many more.
An often overlooked benefit of owner’s title insurance is that it will pay for the legal expenses, including attorney’s fees, required to fix the title issue or to defend you in court against challenges to your ownership by someone else.
Q: How do I buy title insurance?
On execution of the property purchase agreement, a title agent will begin the title search. The cost will depend on the state where you live, how much you pay for the house, and which underwriter provides coverage.
Often both a lender’s and owner’s policies must be combined to give everyone adequate coverage. At closing, the parties purchase title insurance for a one-time fee.
Determining who pays may be negotiable—typically, the seller funds it, but the buyer may offer to pay and sweeten a deal in a seller’s market.
Q: Can I choose my own title company?
Yes. By law (as listed in the Federal Real Estate Settlement Procedures Act or RESPA), if the buyer is paying for title insurance, the buyer holds the right to choose the title company. This is a process that occurs very few times in the average person’s life, so it’s important to find professionals you trust.
If you still have questions about title insurance, we’re here to help!
Attorney’s Title Group takes care of every detail of the closing transaction, including the title searches, preparing and reviewing all relevant contracts, as well as funds disbursement and closing documents. We pride ourselves on high-touch communication and we keep all parties updated throughout the duration of the process.
Learn more about Attorney's Title Group and what we call the “ATG Difference” by clicking here, or visit us on Facebook. If you have questions, would like to meet our team, or if you’d like to schedule your closing, please reach out to us at (501) 734-2233 or email: atg@youratg.com.