Title Insurance Explained: What It Protects and Why It Matters
When you purchase a home, you probably expect to hear about homeowners insurance. Title insurance can be less familiar, even though it plays an important role in protecting real estate ownership.
Unlike insurance that protects against future events, title insurance is designed to address certain covered problems connected to the property's past. These issues can involve previous owners, recorded documents, liens, heirs, property rights, and other matters that could affect ownership.
Understanding what title insurance does can help buyers feel more confident about one of the largest investments they may ever make.
What Is Title Insurance?
Before a real estate transaction closes, a title company researches available public records to examine the property's ownership history and identify matters that may affect title.
This process can uncover issues such as existing liens, unpaid taxes, ownership discrepancies, judgments, easements, restrictions, or errors in recorded documents.
When an issue is identified, the title team determines what requirements must be addressed before the title insurance policy can be issued.
However, even a thorough title search cannot uncover every possible problem. Certain issues may be difficult or impossible to identify through the public record. Title insurance provides protection against certain covered title risks, subject to the terms and conditions of the policy.
Owner's Policy vs. Lender's Policy
There are two types of title insurance you will commonly encounter during a financed real estate transaction.
A lender's title policy protects the mortgage lender's financial interest in the property. Lenders generally require this coverage when financing a home.
An owner's title policy protects the property owner's interest. Depending on the terms of the policy, it can provide protection against certain covered title problems that existed before the owner purchased the property.
It is important to understand the distinction. A lender's policy protects the lender. It does not provide the same protection for the homeowner's ownership interest.
What Types of Problems Can Affect a Property's Title?
A property may have changed ownership numerous times before reaching its current buyer. Problems associated with a previous transaction can sometimes surface years later.
Examples of potential title issues can include:
Unknown or missing heirs
Forged or improperly executed documents
Errors in public records
Unpaid liens or taxes
Ownership disputes
Mistakes involving wills or estates
Incorrect legal descriptions
Certain undisclosed interests or claims involving the property
The exact protection available depends on the specific title insurance policy, including its terms, conditions, exclusions, exceptions, and coverage limits.
Why Does Title Insurance Matter?
For most people, purchasing real estate represents a substantial financial investment. Discovering after closing that someone else claims an ownership interest or that a previously unknown title problem affects the property can be complicated and costly.
If a covered title claim arises, an owner's title insurance policy may provide for a legal defense and protection against certain covered financial losses, subject to the policy.
Another important difference between title insurance and many other forms of insurance is how it is purchased. An owner's title policy generally involves a one time premium paid at closing, rather than an ongoing monthly or annual premium.
The Title Process Starts Before Closing Day
Title insurance is only one part of the work happening behind the scenes before you receive your keys.
Once a transaction is opened with the title company, the title team begins reviewing the property's history and identifying requirements that need to be addressed. Starting this process promptly gives everyone more time to work through potential issues before the scheduled closing date.
Buyers should also review their title commitment when they receive it and ask questions about anything they do not understand. Your REALTOR®, title professional, lender, or attorney can help direct you to the appropriate resource depending on the question.
Protecting More Than a Transaction
Closing day may mark the end of a real estate transaction, but for the buyer, it marks the beginning of property ownership.
Title insurance is designed to provide an additional layer of protection for that ownership by addressing certain covered risks connected to the property's past.
At Integrity Land Title, we believe buyers, sellers, and real estate professionals should understand what is happening throughout the closing process. Our team is here to help make the title and closing experience clear, organized, and easier to navigate from contract to close.
Have questions about an upcoming transaction? Contact Integrity Land Title and let our team help you get started.