The various title insurance policy types are designed to protect against loss in event the title to property is challenged.
A title insurance policy is issued by title companies to help ensure that the title of the property you are purchasing is clearly yours until you decide to sell the property. In the unlikely event that a third party were to come forth claiming a right to your property, the company that the title insurance is through would have to defend your interests in court as well as your right to the property. The title insurance is used as a way to track the title of the land throughout the history of the property and prove that you have purchased the land when the title was clear.
Why Do I Need a Title Insurance Policy?
Title insurance is not required in all regions; however in the vast majority of areas it is required by law. The policy serves to protect you in the case that the title is ever challenged in court by a third party. In this situation, the company that the policy is issued through serves as your defense against the party claiming right to the property to prove that the title is yours free and clear.
When the Title is Challenged?
When a third party comes forth with a claim to your property it is a very rare occasion that they are able to provide sufficient information to prove in court that they have a right to the land. When this is the case however, a person could stand to lose everything they have invested in the property.
Title insurance insures that if the title company were to lose in court, they would have to pay you the full price of your property. Additional title insurance can be purchased if additions or improvements are made to the home, to ensure that the amount you would be paid for the property increases as the value of the property increases.
In the rare event that this lawsuit is lost, the company is required to pay you the full for the value of your home. It is a rare case for this service to ever be needed, and an even more rare case for the lawsuit to be lost by the policy company. However it is well worth the price to have the knowledge your real estate title is protected. In most cases it is the responsibility of the purchaser to attain such a policy, however in some cases either due to regional requirements or simple transaction agreements, the seller will furnish the policy for the buyer.
Information on Title Insurance Policy Types
There are many title insurance policy types that can be purchased to protect your property. Title insurance policies are unlike any other insurance policy. Where most insurance is paid either monthly or yearly, a title insurance policy is purchased once and is never purchased again unless the property is sold to a new owner. Title insurance can transfer to a new owner only by inheritance, and if the property is sold the policy expires and a new one needs to be purchased by the new owner.
The first type of title insurance is the owner’s policies which prove that the purchaser is able to hold the title free and clear of all liens.
Lender’s policies are held by the mortgage holder to ensure that the property financed with their paper does not effectively “disappear” in any way through additional transactions.
Construction loan policies, which are not required in all areas, increase the value paid off after completion of property improvements in the event that the title to the property is lost for whatever reason.
Lenders Title Insurance
There is another type of title insurance called lenders title insurance also. This insurance is for mortgage lenders who could also lose everything if the property were to be proven to be owned by another party. If a person who owes a significant amount on their mortgage finds that they do not even own the property, they are not likely to be able to pay the lender their owed sum, nor will they be very inclined to pay for a home that they do not get to keep.
Lender’s title insurance is designed to protect the lender in the same way that general title insurance is designed to protect the buyer. Purchasing a title insurance policy is required in most regions and is usually the responsibility of the buyer. However it can be made the responsibility of the seller if agreed upon in the purchase agreement, or in certain areas where the seller is required to take a policy out on behalf of the purchaser.