Most professionals define title insurance as a contractual agreement meant to cover loss resulting from property ownership issues. In my opinion, stating that title insurance warrants the validity of the title to real property and provides evidence that the lender or the owner is in lawful possession of the property would be more to the point.
Let’s Clear Up the Confusion!
Now that you know what title insurance is and what it does, I would like to clear up some of the confusion surrounding this topic. One essential aspect you may not be aware of is that there are two types of title insurance policies:
- Lender’s policy – The lender’s policy is required during the mortgage origination process. Paid by the borrower, this policy doesn’t always cover the full value of the property, protecting the lender up to the amount of the mortgage. Since the lender’s policy is attached to the mortgage, you’ll have to buy another one if you decide to refinance.
- Owner’s policy – As the name implies, the owner’s policy protects the landowner. This type of policy is optional, can represent the full value of the property at the time of purchase and lasts as long as the person owns the home.
Prior to issuing a title policy, the title insurance company searches through public records, looking for issues that may affect the title. If no problems are found, the company will issue a policy that will defend the policyholder should anyone challenge the title.
Many people mistakenly believe that title insurance is the same thing as homeowner’s insurance. It is not. While the homeowner’s policy provides protection against natural disasters, fire damage, vandalism, theft, etc., the title policy ensures that the ownership of the property is without defects, protecting the lender or landowner against a series of problems, such as encumbrances, liens, spousal claims, fraud, forgery, undisclosed heirs, clerical errors, reduction in the value of the property, etc.
Another important point is that, unlike other forms of insurance which offer protection against losses for a specified period of time into the future (starting with the date on which they’re issued), a title policy extends backward in time, protecting the policyholder against financial loss from past events that could result in a claim at a future date. Therefore, title insurance provides protection against past as well as future challenges to the ownership of a home.
Besides the fact that most lenders will not grant you a home loan without a title policy, imagine the following scenario: You’ve just bought and settled into your dream home. A week later, a man knocks on your door and says that he and his sister co-purchased the house twelve years ago. His sister decided to sell the house, without being aware that she needed his signature. He says that the sale is invalid and he wants you out. If he goes to court and proves the veracity of his story, he may get the house back and you will be evicted. The only way to protect yourself from losses due to such claims is to have a title policy, separate from the one you get for your lender.
At Guardian Title & Trust, we provide professional title, escrow and real estate closing services to consumers, creditors, developers and real estate professionals. To learn more about our services, we invite you to get in touch with our professionals at (904)-992-1162.