Title insurance is a type of insurance that protects homeowners and lenders from potential losses that may occur as a result of defects in the title to a property. The purpose of title insurance is to provide financial protection against any claims or legal issues that may arise from such defects, such as liens, encumbrances, or other title-related problems.
The most common type of title insurance is called lender's title insurance, which is required by most lenders when a property is purchased with a mortgage. This type of insurance provides protection for the lender in the event that there are any issues with the title to the property that could affect their interest in it. Lender's title insurance is typically required for the duration of the loan, and the cost of the insurance is typically built into the closing costs of the loan.
There is another type of title insurance called owner's title insurance, which is optional, but it provides protection for the homeowner. This type of insurance is typically purchased at the time of closing, and the cost is typically a one-time premium paid at closing. Owner's title insurance provides protection for the homeowner against any issues with the title to the property that could affect their ownership of the property, such as claims by third parties or mistakes in the public records.
When purchasing a property, the first step in the process is to conduct a title search. The title search is a review of the public records related to the property, such as deeds, mortgages, and court records. The purpose of the title search is to identify any potential issues with the title to the property, such as liens, encumbrances, or other title-related problems. The title search is typically conducted by a title company or an attorney.
If any issues are found during the title search, they must be resolved before the closing can take place. For example, if a lien is found on the property, it must be paid off or otherwise satisfied before the closing can take place. If there are any other issues with the title to the property, they must also be resolved before the closing can take place. Once all issues have been resolved, the title company or attorney will provide a title report and a commitment to insure the title.
Title insurance is an important aspect of the real estate transaction process. It provides peace of mind for both homeowners and lenders, knowing that they are protected against any potential losses that may occur as a result of defects in the title to a property. It also helps to ensure a smooth and successful closing process, by identifying and resolving any issues with the title to the property before the closing can take place.
It is important to note that title insurance does not protect against future events such as zoning changes, new laws or regulations, or any encumbrances that may arise after the policy is issued. Also it does not protect the borrower against fraud or any other intentional acts of the borrower. It only protects against any defects, liens, encumbrances, or other title-related problems that existed at the time the policy was issued.
So Title insurance is a type of insurance that protects homeowners and lenders from potential losses that may occur as a result of defects in the title to a property. It is typically required by lenders when a property is purchased with a mortgage and is also offered as an optional purchase for the homeowner. It is important to conduct a thorough title search and resolve any issues before closing to ensure a smooth and successful transaction, and in case of any issues, title insurance provides financial protection against any claims or legal issues that may arise from such defects.