Title Insurance: Peace of Mind in the Purchase of Real Estate
What is title insurance? Why is it recommended? How much does it cost? If these are questions that cross your mind when confronted with the topic of title insurance, you are not alone. In every purchase and sale of real estate, the buyer and seller are faced with the decision to purchase title insurance. With these thoughts in mind:
What is title insurance?
When a piece of real property is financed, purchased or sold, a record of that transaction is filed in the county recorder's office in which the real property is located. Likewise, other events effecting the real property are also filed, such as liens, levies, and encumbrances to name a few. When a buyer purchases title insurance, the title company reviews these records to find, and remedy when possible, issues that may affect the purchaser's ownership of the real property. This is called the search. Following the search, the title insurance underwriter then determines the insurability of the title and lists exceptions from coverage and the requirements to insure.
There are two separate title insurance policies, a loan policy and an owner's policy. When you purchase a new home or other piece of real property by securing a mortgage, you will be required by your lender to purchase a loan policy of title insurance. This policy insures the lender against covered title defects up to the amount of insurance. This coverage, in favor of the lender, lasts for the life of the loan under limited circumstances stated within the policy.
Along with the loan policy (which is required by the lender) you will have the option of purchasing an owner's policy of title insurance, which provides insurance directly to the insured owner listed in the policy, and describes the type of real property interest owned. The loan policy only protects the lender and in order to achieve your own protection, you must purchase an owner’s title policy.
Why is Title Insurance Recommended?
In a perfect world, any search of a piece of real property would show all the risks associated with that particular piece of real property. However, we are all aware that the world is not perfect. Even the most skilled title professionals may not find all title problems. Filing errors, forgeries, undisclosed heirs, and other unforeseen issues can prevent the discovery of risks affecting the real property, which may not be discovered until long after the purchase and sale of the real property is consummated. An owner’s title insurance policy seeks to protect you from these undiscovered future title defects by providing financial indemnity.
How much does Title Insurance Cost?
Unlike other forms of insurance where the premiums are paid on an ongoing basis, title insurance is paid based on a one-time premium. The cost of this one-time premium, paid at the close of your transaction, depends on the type of policy being sought. The premium for an owner’s policy is based on the purchase price for the real property while the premium on a loan policy is based on the total amount of the loan. In Ohio, the premium rate is set by the Ohio Department of Insurance and therefore the same regardless of the title insurance company issuing the policy.
Disputes as to ownership of real property can be costly. Even if the seller warrants good title to you in the deed, there are no guarantees that the seller will have the money to pay your losses if a problem arises. Title insurance includes coverage for the legal expenses necessary to investigate, litigate or settle an adverse claim if problems arise. The purchase of a home or other real estate is often the largest financial investment you will ever make. With title insurance, you can rest easy with an added peace of mind knowing that the title to your investment is insured.