When a piece of real estate is sold, buyers want to be certain that the legal ownership is properly transferred and that they hold valid legal title to the parcel. If a loan was used to finance the purchase, the party who loaned the money wants to be certain that the mortgage lien that secures repayment of the loan is valid. Title insurance is the legal device that accomplishes both ends.
What is covered by title insurance?
A title insurance policy works much like any other insurance policy. The party who wants the insurance pays a specified premium, and the company that is issuing the policy agrees to pay any costs incurred by the policyholder if the title to the property is defective in any way.
In the modern system of conveyance recording, a great deal of information must be entered into public records whenever a transaction involving a specific tract of land occurs. The information can be a complicated legal description for the property, the name of any mortgagee, or the date of a transaction that may affect title to the property, or the date on which the satisfaction of a prior mortgage was recorded. If any of this information has been erroneously entered in public property records, the title to the property may be damaged.
What does the title insurance company do?
Once the client pays the premium, the title insurance company searches all public records for a mention of the tract that is being transferred. If this search does not reveal any problems with the title, it will issue a policy of title insurance.
In most transactions, the policy names the lender as the named insured. The purchaser can elect to purchase an owner’s policy of title insurance, but most people elect to rely on the title search conducted by the title insurance company and thereby save the cost of paying the premium on a separate owner’s policy. In most transactions, the borrower/buyer is required to pay for the mortgagee’s title insurance policy.
Anyone who may be interested in purchasing title insurance or simply relying on the policy that protects the lender may wish to consult an experienced real estate attorney for advice on the utility of purchasing a separate owner’s policy.