WHAT IS A TITLE?
The word “title” is a collective term for all your legal rights to own, use, and dispose of land. Title includes all previous ownership, uses, and transfers. Before you can legally transfer real estate property, you’ll need to perform a title search to prove your title is free of any circumstances that could endanger your rights of ownership.
WHAT IS TITLE INSURANCE?
Let’s start with what you know. You’re probably familiar with homeowner’s insurance, which protects you from future events like floods or fires. Title insurance also protects your home investment, but this insurance is for defects that already exist in the title. If your legal rights to your property are ever challenged, title insurance protects you from hazards like outstanding mortgages, liens, easements, or pending legal action.
HOW DOES TITLE INSURANCE WORK?
The title insurance process starts with a search of property records to uncover any existing title defects. If any defects are found, your title company will work to correct them so they can issue a “clean title” to your property. Sometimes hidden hazards like forged signatures or an unknown heir can pop up after closing, but as long as you have a financial interest in the insured property, your title insurance will protect you. Even if issues arise, your title insurer will pay to defend your title by either perfecting it or paying valid claims.
WHAT’S THE DIFFERENCE BETWEEN A LENDER’S POLICY AND AN OWNER’S POLICY?
A lender’s policy is designed to protect your lender’s interest in the property for the amount of the mortgage loan. This type of policy exists on every loan.
An owner’s policy is designed to protect the home buyer’s interest in the property against issues like mistakes in legal documents, forged deeds, undisclosed heirs, deeds executed under an invalid or expired power of attorney, liens for unpaid taxes, fraud, etc. Even though owner’s policies are optional, it’s a small cost for great protection and peace of mind in case your property is ever challenged.