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What is a Title...?
When purchasing a home, instead of purchasing the actual
building or land, you are really purchasing the title to the
property - the right to occupy and use the space. A title is the
evidence or right, which a person has to the ownership and
possession of land. A defect in the title can be any legal right
held by someone other than the owner to claim property or to
make demands on the owner of that property. When you purchase
real property, you will receive a written document (called "the
deed") which transfers the ownership (title) of the property to
you as the purchaser. The conveyance of real property is not
complete until the deed is recorded with the county. |
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What is Title Insurance...?
Title insurance was developed to protect the parties involved in
real estate transactions. Title Insurance is purchased with a
low, one-time premium at closing, and is an insured statement of
the condition of the title that protects the owner. It will
cover you if a problem regarding title defects or legal
ownership arises that was not discovered during the title search
(for example, if an earlier deed was forged or had unknown
mistakes, or that strip of back yard you thought you were buying
actually belonged to someone else). The insurance provider
guarantees you against loss due to any defect in title or
expenses related to your legal defense.
Although title problems are infrequent, they could result in the
loss of your house or large legal fees, so it is wise to protect
yourself. The mortgagee (lender) will most likely insist on
title insurance to also protect their investment. There are two
types of title insurance:
Owners Policy – An owner's policy insures that the title to the
property is free from defects (liens and encumbrances), except
those which are listed as exceptions in the policy. It is
normally issued in the amount equal to the real estate purchase
price and remains in effect for as long as the owner or their
heirs retains an interest in the property. In addition to
identifying risk before the transaction is completed, the Owners
Policy will pay for costs stemming from claims made against your
title.
Loan/Mortgage/Lender Policy* – The lender's policy is separate
from the owner's policy. It assures the validity and
enforceability of the lien of the lender's mortgage or deed of
trust and serves as protection for the lender's security
interest in the property. A Loan Policy is issued in the amount
of the loan, and liability decreases as the mortgage debt is
reduced.
Do I Need
Title Insurance...?
Title Insurance will protect you from financial loss in the
event that problems develop regarding the rights to ownership of
your property. Before title insurance is issued, the title
insurer performs a search on the title to determine whether any
defects occurred in prior conveyances and transfers. Through the
search and examination process, title problems are disclosed so
they can be corrected whenever possible. However, even the most
careful search process cannot locate all hidden title hazards.
And in the unfortunate event that title defects are found after
the search process, your title insurance policy will have you
covered and protect you from financial loss. Claims against your
property can be in made in over 70 forms. Examples include:
- Mistakes in deeds, wills, and trusts
- Forgeries in the chain of title
- Outstanding mortgages and judgments, or a lien against
the property because the seller has not paid their taxes
- Easements that allow construction of a road or utility
line
- Pending legal action against the property that could
affect a purchaser
- A claim by a previous undisclosed relative of a former
owner
- You Have a Choice of who your Title Insurer will be!
Under RESPA, (Real Estate Settlement Procedures Act) the seller
may not require a buyer, as a condition of the sale, to purchase
title insurance from any particular title company.* However, the
lender may require that you purchase title insurance from a
reputable company. In most cases a home buyer can shop for and
choose a company that meets the lender's standards.
A lender's title insurance policy does not protect you if you
are the purchaser. Before you go to closing, be sure to inquire
about an owner's title insurance policy to protect your most
important investment.
*"Housing and Urban Development Subtitle B – Regulations
Relating to Housing and Urban Development Chapter XX – Office of
Assistant Secretary for Housing – Federal Housing Commissioner,
Department of Housing and Urban Development Part 3500 – Real
Estate Settlement Procedures Act
24 CFR 3500.15: Affiliated Business Arrangements
...(2) No person making a referral has required (as defined in
3500.2, "required use") any person to use any particular
provider of settlement services or business incident thereto,
except if such person is a lender, for requiring a buyer,
borrower or seller to pay for the services of an attorney,
credit reporting agency, or real estate appraiser chosen by the
lender to represent the lender's interest in a real estate
transaction, or except is such person is an attorney or law firm
for arranging for issuance of a title insurance policy for a
client, directly as agent or through a separate corporate title
insurance agency that may be operated as an adjunct to the law
practice of the attorney or law firm, as part of representation
of that client in a real estate transaction.
...(c) Definitions. As used in this section:
...(9) Person who is in a position to refer settlement service
business means any real estate broker or agent, lender, mortgage
broker, builder or developer, attorney, title company, title
agent, or other person deriving a significant portion of his or
her gross income from providing settlement services."
Protecting Your Home Investment:
How can I be sure my property is really mine?
A simple answer: Title insurance. The purchase of your home is
usually the largest single investment you will ever make. When
you purchase a home, you also purchase several types of
insurance coverage to protect your home as well as your personal
property. Homeowner's insurance protects against loss from fire,
theft, or wind damage. Flood insurance protects homeowners
against losses associated with flooding. Title insurance
protects against hidden title hazards and defects that may
threaten your financial investment in your home. Title Insurance
is different from other types of home insurance and is often
misunderstood, but it is definitely just as important. Title
insurance emphasizes on risk prevention rather than risk
assumption and the coverage offers the best possible protection
for yourself and your investment. |
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