What does Title Insurance mean?
Title insurance is a type of insurance that protects real estate owners and lenders against financial loss due to defects or issues related to the ownership history of a property's title. A property's title is the legal evidence of ownership and the rights associated with that ownership. Title insurance provides coverage for potential problems that may arise from past events, mistakes, or claims that could threaten the owner's or lender's rights to the property.
Here are some common issues that title insurance may protect against:
- Ownership Issues: Title insurance helps ensure that the person claiming to sell the property is the actual legal owner. This can protect against instances where multiple parties claim ownership or when the title has been transferred fraudulently.
- Liens and Encumbrances: Liens, unpaid taxes, mortgages, or other claims against the property's title can affect ownership rights. Title insurance helps cover the costs of resolving these issues.
- Forged Documents: If someone forges a signature on a deed or other property-related document, it could result in a disputed ownership claim. Title insurance can provide coverage in such cases.
- Missing Heirs or Undisclosed Wills: Inherited properties might have claims from unknown heirs or undisclosed wills that could create legal disputes. Title insurance can offer protection against these uncertainties.
- Errors in Public Records: Mistakes in public records, such as incorrect property boundaries or clerical errors, can lead to ownership disputes. Title insurance helps address these issues.
- Fraudulent Claims: If someone fraudulently sells a property they don't own, the true owner might face legal challenges. Title insurance can provide financial protection in these situations.
There are two main types of title insurance:
- Lender's Title Insurance: Often required by mortgage lenders, this type of insurance protects the lender's financial interest in the property. It ensures that the lender's lien is valid and in first position.
- Owner's Title Insurance: This type of insurance protects the property buyer against potential title-related issues. It is typically purchased by the buyer and provides coverage for the property's full purchase price.
Title insurance is usually a one-time premium paid at the time of closing of a property. The insurance policy remains in effect for as long as the owner or his or her heirs have an interest in the property. Before issuing a title insurance policy, a title company conducts a thorough search of public records to identify any potential issues. If any issues are discovered, the title company works to resolve them before issuing the policy.
Keep in mind that the specifics of title insurance can vary based on location and the terms of the insurance policy, so it is important to consult with a professional and review the policy carefully.