What Is Real Estate Title Insurance?

Written by Posted On Wednesday, 17 October 2018 06:34

If you are refinancing your home or buying a new home, at some point, the term title insurance may come up. An incredible number of people have no idea what title insurance is. In short, title insurance is a policy that limits risk to the buyer, owner, and lender of a real estate deal. The coverage may not protect all three financially on every sale, but by excluding risk for liability, title insurance has a good effect for all parties concerned.

At one time, if a person wanted to buy a property, they would reach a lawyer to research the property who would make a trip to the courthouse and pull all the necessary records to ensure the property is clear of mortgages, tax liens, municipal liens, and judgments. They would ensure the person(s) selling the property is the real owner(s) of record and would also research the chain of title to ensure the way which the owner obtained the property does not present any claims to other individuals/groups. If the person buying the property wanted a loan, the attorney would assure the Bank the property was either clear or had difficulties, meaning any liens or other property rights that may be violated. As Banks became multi-national, it became necessary for some insurance to reimburse the Banks if there was a problem after the closing. Attorneys still covered a good portion of title insurance in the United States. Nevertheless, title companies cropped up to specialize in these types of activities. In many cases for simple residential sales, title companies are faster and more efficient for getting through the lender's process. According to True Title, a title attorney Florida, the word "title" is used by lawyers to describe the right of ownership to a piece of land. When you purchase a home, a title is transferred to you, as the new homeowner. Therefore, title insurance is an insurance policy that will protect you, the homeowner, against any challenges to the ownership of your home or from any problems that are related to the title to your home.

Refinancing

In many ways, a lender's policy and an owner's policy are similar. If a person is refinancing, title insurance is purchased, at the borrower's expense, to ensure the new Bank that its mortgage will be in first lien position at the courthouse after the closing. At this point, the Bank may request a title insurance commitment. This commitment is required for most loans as the Bank will ask a Lenders' Title Policy. A search of the courthouse records is performed by the title company and examined. In Pennsylvania, Deeds, Mortgages, liens, etc. are recorded in the order they arrive at the courthouse. So, if you have an old mortgage and the bank records a new mortgage, the new mortgage will be in second lien position. In this case, the old mortgage would take precedence over the new mortgage as far as rights for foreclosing. The old Mortgage, once it is paid off, would have to be satisfied. And then, the new mortgage would move up into the first position at the recorder's office. This is the primary function of the Lender's Title Insurance on a refinance. The new Bank is making sure that if you were to ever default on your loan with them, they could foreclose on the property to get their money back. The house is collateral for the loan, and they are just protecting themselves.

I would like to reiterate that the potential risks that are involved with real estate are so numerous and vast, it is easy to see why most Banks and Mortgage Brokers require title insurance and most people that are in the real estate business, realize why it is so vital to their processes. It is great to have some comfort in the fact that the land/property has been researched and is clear for transfer. You should also factor in the notion that it is a onetime fee for the assurance that you are taking full ownership of an asset that you are cleared to purchase. And, an Owner's Policy last as long as you and your heirs own the property, where else can you get that kind of comfort for you and your family?

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