Title Insurance Explained
Before I became interested in real estate, I was exasperated when we sold -or purchased a house and -back then- received a stack of documents. I was told to “read it.” Yeah, right. I actually didn’t really know what this “title thing” was.
While all recorded information was correct and the title insurance company actually did insure that we owned the home, they ‘forgot’ to properly release 3 liens totaling $1.5 million. While we were guaranteed “marketable title” and the insurance insists that we have it, no other title company will insure the ownership of our home. We have a little mess on our hands that we need to clear up.
I think it’s clear why title is so near and dear to my heart.
What is a Title Commitment?
Once the title company has researched a property’s title, it will disclose to all parties connected with a particular real estate transaction all the liens, defects, and burdens and obligations that affect the subject property. The title company will then announce their commitment to insure (in short: title commitment) this property’s title to the new owner under certain circumstances – it lists all requirements that must be met before a title company can insure a title as “marketable” or a loan as having a certain priority.
Marketable title is a title free from reasonable doubt or defect, which can be readily sold or mortgaged. It is a title that assures a purchaser “quiet and peaceful enjoyment” of the property, yet marketable title may have certain encumbrances that a reasonable purchaser would be willing to accept.
This assurance of a title commitment by a title company provides a safe procedure for purchasers and lenders to close transactions before the actual title policies have been issued.
Owners Title Insurance
Owner’s Title Insurance, called an Owner’s Policy, is usually issued in the amount of the real estate purchase. It is purchased for a one-time fee at closing and lasts for as long as you or your heirs have an interest in the property. Only an Owner’s Policy fully protects the buyer should a covered title problem arise with the title that was not found during the title search. Possible hidden title problems can include:
- Errors or omissions in deeds
- Mistakes in examining records
- Undisclosed heirs
An Owner’s Policy provides assurance that your title company will stand behind you — monetarily and with legal defense if needed — if a covered title problem arises after you buy your home.
Lender Title Insurance
Lenders title insurance, might also be called a Loan Policy. Most lenders usually require a Loan Policy when they issue you a loan. The Loan Policy is usually based on the dollar amount of your loan. It only protects the lender’s interests in the property should a problem with the title arise. It does not protect the buyer. The policy amount decreases each year and eventually disappears as the loan is paid off.