What is Title Insurance?

The purchase of a home is for many, the single largest investment you’ll make in your lifetime.  It is only prudent to safeguard your rights and investment.  Title insurance assures your rights and interests to the subject property, transfer of ownership, and protection from future claims against the property.  It is the most effective and least expensive way to protect your ownership rights.

Since land endures through the generations, many people may develop rights and claims to a particular piece of property.  The current owner’s rights, with often involve family and heirs, may be obscure.  There may be other parties such as government agencies, public utilities, lenders or private contractors, who also have “rights” to the property.  These interests limit the “title” of any buyer.

Before your real estate transaction closes, the title company performs an extensive search of all recorded documents related to the property.  These records are then examined by experienced title officers to determine their effect on the current status of ownership.  A report is then issued to you or your agents for review.  This thorough examination generally allows any pending title problems to be identified and cleared prior to your purchase of the property.

If title insurance companies work to eliminate risks and prevent losses caused by defects in the title before the closing, why do you need a title insurance policy?

Even after the most careful research, some title flaws may go undetected.  Among the more common flaws to title (which are not record flaws) are: forgery, invalid court proceeding, mistaken legal interpretations, defective deeds, confusion due to similarity of names, previously unrecognized rights of spouses, and undisclosed heirs.  These problems may surface at any time in the future.

Protection against these flaws and other claims is provided by the title insurance policy, which is issued after your transaction is complete.  Two types of policies are routinely issued at this time: an “owner’s policy,” which covers you, the homebuyer, for the full amount you paid for the property; and a “lenders policy,” which covers the lending institution over the life of the loan.  When purchased at the same time, you can obtain a substantial discount in the combined cost of an owner’s and a lender’s policy.  Unlike other forms of insurance, your title insurance policy requires only one moderate premium for a policy to protect you or your heirs for as long as you own the property.  There are no renewal premiums or expiration date.

Each policy is a contract of “indemnity.”  It agrees to assume the responsibility for legal defense of your title for any defect covered under the policy’s terms and to reimburse you for actual financial losses up to policy limits.

This article is from Cam Hunter at California Title Company.

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