What Is Title Insurance in Real Estate?

When you buy a home, you are given a title to the property, which generally means you receive full legal ownership. Sometimes, there is a hidden mistake in a prior deed, will, mortgage, etc., that may give someone else a valid legal claim against your property!  Even worse, there could be potential fraud.

For new homebuyers, title insurance protects against loss if a covered defect is found in the title to your home. It offers you information on the status of the title to land before you buy or refinance and protects against title claims that may affect the title after you buy. Having title insurance can save you money, time, trouble, even your home!

 

How Does Title Insurance Differ From Other Types of Insurance?

Title insurance is substantially different from other types of insurance coverage. Title insurance emphasizes risk prevention rather than risk assumption, so the coverage offers the best possible opportunity to avoid claims and losses in real estate transactions.

Because of the important corrective work that title professionals perform, it is rare for lenders or homeowners to suffer a loss under their title insurance policy.

The majority of the title insurance premium goes toward the exhaustive research and due diligence work done by Capital Land Settlements upfront, while a small percentage goes toward the payment of claims.

Title insurance is charged only once at closing, where other forms of insurance typically require monthly or quarterly payments.

 

What is a Title Search?

The purpose of the title search is:

  • To verify the seller's right to transfer ownership.
  • To discover any claims, errors, assessments, debts or other restrictions on the property.

According to the American Land Title Association, title companies find and fix problems with the title in 25% of transactions-usually without the the borrower or lender even knowing it! In addition, title companies pay millions of dollars each year in claims. Title insurance provides significant value to lenders and homeowners.

Before closing, Capital Land Settlements searches the public records for all matters affecting title. The search entails examining the records in the offices of the Register of Deeds, Clerk of Courts, and other municipal and county officials. These records include recorded documents, judgments, liens, taxes, street easements, sewer assessments, special taxes and other matters that could affect property ownership.

Through careful examination of these records, we determine who owns the property and what interests may already exist in that property.

This process, called a title search, provides early warnings of title flaws that must be dealt with before the property can be sold or refinanced.

 

What is a Settlement Statement?

The Settlement Statement is the document prepared by the title company at closing which shows where all of the money in the transaction is coming from and going to. It gives a 'financial picture' of the closing transaction. At closing, the title company is responsible for preparing the HUD-I Settlement Statement in accordance with the contract, lender's instructions, market practice and state and federal laws. For additional information from ALTA on the HUD-I Settlement Statement visit http://www.alta.org/consumer/hud1.cfm

Know the facts, understand costs and prepare for the closing day with ALTA's "Home Closing 101" educational initiative.

How Does Title Insurance Work?

According to the American Land Title Association, title companies find and fix problems with the title in 25% of transactions - usually without the the borrower or lender even knowing it! In addition, title companies pay millions of dollars each year in claims. Title insurance provides significant value to lenders and homeowners.

Before closing, Capital Land Settlements searches the public records for all matters affecting title. The search entails examining the records in the offices of the Register of Deeds, Clerk of Courts, and other municipal and county officials. These records include recorded documents, judgments, liens, taxes, street easements, sewer assessments, special taxes and other matters that could affect property ownership.

Through careful examination of these records, we determine who owns the property and what interests may already exist in that property. This process, called a title search, provides early warnings of title flaws that must be dealt with before the property can be sold or refinanced.

In those transactions where title insurance is involved, the title company must determine insurability of the title as part of the search process. This leads to the issuance of a title policy, which insures the existence or non-existence of rights to the property.

The title insurance company will, at its own expense, defend the title and will pay losses within the coverage of the policy if they occur.

 

Types of Title Insurance

The Lender's Policy There are two types of title insurance: Lender's title insurance and Owner's title insurance. Most lenders require a loan policy when they issue you a loan. The loan policy is usually based on the dollar amount of your loan. It protects their investment (the mortgage) and protects them against loss should a title problem arise. The policy amount decreases each year and eventually decreases as the loan is paid off. Lender's title insurance only protects the lender. It does not protect the owner. (FAQ - Doesn't the lender's title insurance protect the homeowner?) No. A lender's policy protects only the lender's interest in the property should a problem arise. It does not cover the owner's equity in the property, and will not pay the homeowner's legal expenses if there's a title problem. Only an owner's title insurance policy will protect the homeowner.

The Owner's Policy Owner's title insurance is usually issued for the amount of the real estate purchase. You pay a one-time fee at closing and lasts as long as you or your heirs have an interest in the property. This may be even after you have sold the property. Only an owner's title insurance policy fully protects the homeowner should a title problem arise that was not uncovered during the title search. An owner's policy can also protect you by paying for any legal fees involved in defending a claim to your title. What does an owner's policy provide?

  • Protection from financial loss due to claims against the title to your home, up to the face amount of the title policy.
  • Payment of legal costs if the title insurer has to defend your title against a covered claim.
  • Payment of successful claims against the title to your home covered by the policy, up to the face amount of the policy.
 

About the Real Estate Closing Process

The closing is the final step in the sale, purchase or refinance of the property. Ownership of the property is transferred, title insurance is issued and coverage begins.

Those present at the closing may include the buyer, the seller, the lender, real estate agents representing either party, and the closing agent.

Capital Land Settlements conducts the closing according to the instructions of the lender, the terms of the contract between the buyer and seller, and the requirements of state and federal laws.