If you’re in the process of buying or selling real estate, you may hear the term “title insurance” come up. A title insurance company provides title insurance to homebuyers and mortgage lenders in the event that a title is contested during or after a real estate closing. Title insurance is typically required by the mortgage lender as part of your closing costs when you buy a home. You also have the option to purchase additional coverage for yourself.
Title insurance companies protect policyholders from financial damages related to an unclear title. Here’s a more in-depth look at what title insurance is and what title insurance companies do.
Why Do I Need Title Insurance?
When property is sold and purchased, the title or deed for the property is supposed to be transferred to the new owner. The recorder of deeds in the county where the property is located keeps a record of the transfer of ownership. However, perfect record keeping is never guaranteed. This means that someone else could have a deed claiming ownership of the property or a lien on the property.
If you are attempting to purchase a property and someone else comes forth with legal documentation proving their ownership of the property, things can get complicated and expensive. You may not have purchased the property yet, but you’ve already spent a significant amount in closing costs, due diligence, good faith deposits, and possibly more. But if you have title insurance, you will receive payment for what you’ve lost up to the amount of your policy.
If you have already purchased a property and the closing is complete, but then someone comes forth with legal documentation of ownership of the property, you could be forced to turn over the property to the other owner. If this occurs, your title insurance company will pay you for your losses up to the amount of your policy.
Who Needs Title Insurance?
Title insurance is for homebuyers and mortgage lenders. More often than not, your mortgage lender will require you to purchase title insurance on their behalf as part of your closing costs. You can also purchase your own title insurance policy to protect your financial investment in the property. Whether you’re buying a home, a commercial property, or refinancing a mortgage, title insurance is still an important part of the process.
What is Involved in a Title Search?
Title insurance companies will typically conduct a title search before the closing date. A title search involves doing thorough research on the history of the property’s ownership. Starting with the original title when the land was first acquired and moving on from there, a title search will ideally show the seamless transfer of the deed from one buyer to the next. If there are any missing years or places where the names don’t match up, there is a risk that there could be another owner or a lien on the title.
Title insurance companies provide this service for the benefit of their customers as well as themselves to prevent losses in the event that a property does not have a clean chain of title.
How Do I Choose a Title Insurance Company?
You may or may not have a choice when it comes to purchasing title insurance required by your lender. However, when purchasing your own policy you have complete freedom to choose a provider.
When choosing a title insurance company, of course you’ll want to compare rates. Be sure to also compare the amount and details of your policy. Find out exactly what you’re getting for the rate you are quoted before making a final decision on a provider.
American Guardian Title Provides Insurance for Buyers and Lenders
Whenever real estate changes ownership, it is necessary for a thorough title search to be conducted. Even so, title issues can come up and may be costly. American Guardian Title can help protect you financially in the event of a title defect. Title insurance is required by most mortgage lenders and highly recommended for buyers. When you purchase title insurance, you are purchasing the peace of mind that comes from knowing that you are financially covered if a title issue should arise.