What You Need To Know About How Title Insurance Works

Title insurance can be understood as a type of indemnity insurance whose aim is to protect the policyholder from losses that may occur due to a problem in a title to a given property. There are two types of title insurance, but the commonest one is the lender’s title insurance, which is purchased by a borrower to protect a lender. On the other hand, the owner’s title insurance is usually purchased by the seller in order to protect the equity of the buyer in a property.

How Title Insurance Works

When it comes to real estate transactions, a clear title is a necessity. Title companies must perform a thorough check for liens or claims against the property in question. The title search has to do with the close examination of public records with the aim of confirming the legal ownership of a property and to find out if there are any claims on a property. Building code violations and erroneous surveys are examples of issues that can make a title defective.

Title insurance seeks to protect both the property owners and the lenders against damages or losses that may occur as a result of encumbrances, liens, or even actual ownership of a real estate. Therefore, unlike conventional insurance policies, which protect policyholders against future events, title insurance protects holders against issues that may have occurred in the past.

Types of Title Insurance

There are two major types of title insurance: owners’ insurance and lenders’ insurance. Most lenders require their borrowers to get lenders’ insurance in order to protect the lender in case the seller is not able to legally transfer the property ownership rights. Therefore, the lenders’ insurance policy can only protect the lender from a potential loss.

Owners’ title insurance policies are usually purchased by sellers in order to protect the buyer against any defects in the property title. This is because title searches are not perfect or infallible, meaning that without the insurance, the risk is always a risk of financial loss. Therefore, this insurance provides buyers with the extra protection that is required in real estate transactions

Purchasing Title Insurance

A closing agent or an escrow has to initiate the insurance process immediately after the completion of a real estate purchase agreement. Some of the tops American underwriters that your lawyer or agent may recommend include Fidelity National Insurance, Old Republic National Title Insurance, Steward Title Guaranty Co, and First American Corp, among others. On average, owners’ title insurance is going to cost you about 1 percent of the property purchase price, but this can vary slightly from one state to another.

The Takeaway

Overall, it is apparent that when it comes to real estate transactions, the importance of title insurance cannot be overemphasized. Indeed, these policies are essential in order to protect both the lenders and buyers against any defects that may affect the property title. For instance, if there is an ownership dispute that, for some reason, is not reflected in the property search, bother the lender and the buyer will be protected against the financial losses that may follow. Therefore, although it is possible to buy a property without purchasing title insurance, it is important for the parties to know that such transactions are highly risky, and they can lead to huge financial losses.