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What Is Title Insurance And Why Do You Need It
Dated: March 4 2016
Land is permanent, but its ownership isn't. There are basic rights that you can expect when you purchase property. But over the years with each new ownership of a property, events affecting the title can take place -- such as refinancing, a tax lien, an encroachment by a neighbor, or the marriage, divorce or death of an owner. That's the case even if you're buying a newly built home.
When a buyer and a seller agree on a home or land purchase transaction, a title professional searches public records to see if any outstanding issues could affect the new buyers' rights. This process, call a title search, provides warnings of title flaws such as recorded liens, legal actions, disputed interests or right of way. Before closing your transaction, the title company "clears" those issues. In fact, according to the American Land Title Association, more than one-third of all title searches reveal a problem that the title professionals fix before you go to closing.
However, the best title search performed by the most experienced and capable experts cannot ensure that no title hazards exist. "Hidden hazards" such as fraud, forgery and missing heirs can threaten your ownership interests. You can purchase a title insurance policy to insure against most of these unforeseen problems.
To better understand this question of "What Is Title Insurance", consider a simple example...
Let’s say you’re in the market to buy a used car.
One day, you notice a nice car parked in someone’s front yard with a “FOR SALE” sign in the window.
The car looks nice, so you walk up to the front door and knock. A man answers the door.
You say to him, “Hi there! I saw this car parked in your driveway — is it yours?”
He replies with, “Nope, I have no idea who owns that car… but I’ll sell it to you for $20,000!“
You can probably spot the problem here.
if you were to fork over $20,000 to this guy, you wouldn’t necessarily “own” the car because he never owned the car in the first place. Just because you pay money to a stranger doesn’t necessarily entitle you to anything. Unless you have a clear title from the actual owner of the car, you have no ownership to speak of!
The bottom line is: A person can’t sell something they don’t legally own.
Even though this scenario may sound ridiculous, you’d be surprised at how many times I’ve encountered situations just like this in the real estate business.
The whole purpose of title insurance is to act as a safeguard for real estate buyers, protecting them from problems just like this. There are all kinds of random issues that affect the title of real property, and title insurance is a product designed to give the buyer full assurance that when they’re buying a property from someone, they’re buying it from the actual owner and they are receiving the FULL rights to that property, just as they expected.
A title insurance policy is almost always issued in the full amount of the buyer’s purchase price (i.e. if you buy a property for $100,000, you’re protected for $100,000). If a title defect ever arises and it wasn’t identified during the original title search, you as the buyer will be protected in this amount.
Here’s a short visual illustration of how title insurance works:
There are two kinds of title insurance policies. Your mortgage lender has a great financial interest in the property you're buying. The lender will require that you buy a Lender's Title Policy to protect its interests in the property during the time it holds a mortgage.
An Owner's Policy of Title Insurance protects YOUR financial interest in the property for as long as you own it. The title policy assures you the title company will pay valid claims, both monetarily and with legal defense if needed.
In addition, it's important to understand title insurance is different from other kinds of insurance, such as homeowners or auto insurance. The premium you pay just once for title insurance buys coverage that lasts the entire time you or your heirs own your home -- whether it's for five years of 105.
For most Americans, our home is the single biggest financial investment we ever make. More importantly, it's where we raise our families, share time with friends, live our lives. And while owning a home may seem very straightforward, the underlying legal rights to the property are more complicated. There are literally dozens of ways in which title to your property can be jeopardized. An Owner's Policy Of Title Insurance provides peace-of-mind by ensuring that title issues don't affect your home ownership rights!
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Terry is the Principal Broker at Regional Realty. He is a motivated Realtor specializing with investors and new home buyers located in the following areas; Alexandria, Ft. Thomas, Ft. Mitchell, Indepe....