Most people who have car, home and health insurance have probably made claims and wouldn’t consider being without it. However, it might be difficult to find a homeowner who has made a claim on their title insurance which could lead a person to think that it may not be necessary.
Title insurance covers the largest investment most people have and if there was a loss, it could be devastating. Title insurance indemnifies the policy holder from financial loss sustained from defects in the title to the property. The policy holder is determined by their interest in the property.
An owner’s title policy protects the owner of the property from title issues that may arise other than the mortgages that are being placed on the property at the time of purchase. The title work for the property goes back in time to check that clear title (no unsatisfied liens or levies and no question of legal ownership) was passed from owner to owner up to the current seller.
A mortgagee’s or lender’s policy protects the lender by guaranteeing they have an enforceable lien on the property and that there are no legal claims from parties asserting they have a claim against the property. Lender’s generally require the borrower to provide this coverage.
The title search is an examination to determine and confirm legal ownership and whether or not there are clouds on the title, so the seller can pass a clear title. A cloud is defined as any document, claim, unreleased lien or encumbrance that might invalidate or impair the title to real property.
If a seller passes title to a buyer a title that has unsatisfied liens against the property, the buyer could become responsible for the money owed and it could affect their ability to sell the property in the future.
Unlike most insurance that has a specific term and periodic premiums, title insurance covers the insured for a single premium. An owner’s policy lasts for as long as they or their heirs have an interest in the property. It guarantees the title up to the date and time that the property was deeded to you and recorded in the public records.
The majority of homes purchased in America have title policies insuring the new owner. You could live in the home for five, ten or twenty years without an incident. Then, when you’re ready to sell the home, a title claim could happen. The title policy would still protect you at that point. It is peace of mind coverage that is part of the investment in your home.