Title insurance is policy of insurance (technically an indemnification policy) protecting homeowners and lenders from actual financial loss in the event that certain covered problems develop regarding the rights to ownership of property. While closing attorneys examine and certify each title to real estate before a closing, there are often hidden title defects that even the most careful title search will not reveal. In addition to protection from financial loss, title insurance pays the cost of defending against any covered claim.
There are two types of title insurance, lender’s and owner’s policies. Lender’s policies are required by most every public mortgage lender in the U.S., and are typically paid as part of closing costs. Owner’s policies are optional and paid for by home buyers.
What Does An Owner’s Policy Of Title Insurance Cover?
A standard owner’s policy of title insurance covers these types of title defects:
- Undischarged mortgages and liens
- Missing heirs
- Forged deeds or impersonations
- Incorrect legal or boundary descriptions
- Recording errors
There is also a new extended or enhanced coverage policy available which covers:
- Building permit violations
- Adverse possession or prescriptive easements
- Building encroachments
- Incorrect surveys
- Pre-existing violations of subdivision, zoning laws, restrictive covenants.
How Much Does Title Insurance Cost?
Title insurance is a one-time premium paid at closing and is calculated based on the purchase price of your home. Click here for our Title Insurance Rate Calculator. Title insurance is a good deal because you pay once and it continues to provide complete coverage for as long as you or your heirs own the property.
What Can Happen If I Don’t Get Title Insurance?
You could be prevented from being able to sell or refinance your property, that’s what. Here are two true stories with happy endings. A condominium seller was shocked to learn a day before the closing that there were several un-discharged mortgages and liens on her unit left over from the original developer. Likewise, a young family was dismayed to learn that the property they were about to buy was subject to the claim of a long-lost heir of a prior owner. Fortunately for both clients, both properties were protected by title insurance which enabled the closings to go forward as scheduled, with the title company undertaking the obligation to discharge the mortgage, deal with the “missing” heir, and clear the title. If title insurance was not available in these transactions, the deals would have been canceled altogether. Or the closings would have been delayed by months if not years until the issues were resolved, if at all.
It should come as no surprise that we always recommend that borrowers obtain their own owner’s policy of title insurance. We always explain the excellent benefits and value of title insurance early in the transaction so borrowers are not surprised later on.