Title Insurance FAQs

What is Title Insurance? Title Insurance protects against losses that could occur if you discover AFTER closing on a real estate deal that someone else can claim ownership of your property.

How Title Insurance Works:  Title insurance is paid for in a lump sum at the time of the closing and is based on the sale price of the property.  Coverage starts on the day the policy is issued and extends backward in time.  This is different from property or life insurance which protects you against losses that occur after the policy is issued.  Title insurance includes a search of past deeds, wills and trusts to ensure that the title has passed to each new owner correctly.  The search also verifies that all liens, judgments and previous mortgages have been paid. 

What else could it show?  A search should uncover many potential problems, such as rights others may hold (e.g. rights of ways, view easements, power line easements, mineral rights), claims by prior undisclosed heirs, and pending legal actions.  Title examiners also look for unpaid tax assessments or a neighbor’s easement for right of way.

What it usually doesn’t include:  Your Title insurer usually does not include government zonings or other land use regulations that could impact the marketability and use of your property.  The Title insurer will not provide you with a list of what they found in their search.  If something needs to be taken care of in order to give clear title, you will be told what needs to be done.

When Title Insurance is required:  If you are buying real estate in most states and using a commercial lender to finance the purchase, the lender will require you to purchase title insurance equal to the amount of the loan.  Title insurance protects the lender up to the amount of the mortgage, but it doesn’t protect your equity.  In order to do this, you need an owner’s title policy for the full price of the property.

Who pays for the Title Insurance?   Generally, most sellers pay for the owner’s policy as part of their obligation to deliver a clean title to the buyer.  An owner’s policy costs roughly one half of one percent of the price of the property.

What about Refinancing?  If you refinance, you will need to purchase a new title insurance policy for the lender.  This policy provides the same coverage as the previous policy as well as protects the lender from any issues that may have arisen since you purchased the property, such as liens or easements.

When are you not required to purchase Title Insurance?  If you pay Cash for a property, you are not required to buy Title Insurance.  Even though you are not required to buy the Title Insurance, it is recommended.

Who’s Choice of the Title Insurance Company is it?   Most lenders or brokers will recommend a title insurance company, but the final choice is yours.  Unlike other types of insurance-such as auto or home insurance, title insurance companies do not market their products directly to the consumers who pay for them.  They solicit business from real estate agents and agencies, banks, lenders, developers and others.  However, you pay the premium for the coverage.  Take the time to shop around but remember service as well as costs should be considered.

What type of problems can their be on the title?  Perhaps the seller is divorced and needs the ex-spouse to sign a document allowing the sale to go through.  This would involve tracking down the ex-spouse for the signature.  Title companies are normally able to solve these issues for you.  Another problem could be that an unpaid electrician put a mechanic’s lien on the property, ensuring payment when the property is sold.  Another one is that the county might have filed a lien to satisfy unpaid taxes.  Of course the most common is that the mortgage lender has a lien on the property, ensuring that the loan is repaid before the sales proceeds go to anyone else. 

What is a Cloud on the Title?  “Cloud” is a (Title Defect) affecting title to the property. An example would be if a title search on a property showed that a deed had been recorded transferring title from the previous owner to the new owner.  The problem came when it was noticed that the deed was signed by only one of the two owners.  Due to an oversight, the wife’s signature wasn’t on the deed.  This meant that the wife could still make a claim to the property.  In effect, she was still in title as an owner because she hadn’t transferred her interest in the property.

Additional Tips:

  1. Make sure the title policy amount is for the full value of the property.
  2. Check to see that the policy date matches the closing date of the escrow.
  3. The policy must describe all the property and interests you are purchasing.
  4. Many title insurers offer a discount when both a lender and an owner policy are purchased at the same time.
  5. Ask you title insurer if you qualify for other discounts.
  6. If you have a copy of your last Title Insurance on the home you are selling, give it to the Title Company as soon as you know who is going to do the Title Work and ask for a credit.  Most companies will give this credit and the amount will vary depending on the age of the policy.
  7. Make sure the company you select meets your standards and those of your lender.

A good Title:  Your real estate purchase contract should include a clause that requires the sellers to provide you with good or marketable title to the property at closing.  If the seller is unable to do this, you should be able to withdraw from the contract without penalty.

Tip for first-timers:  A lender’s policy of title insurance won’t protect the buyers’ interest, but buyers can get title insurance for their own protection.  Even if you’re paying all cash for a property, and won’t need a mortgage, it’s wise to obtain a title insurance policy to protect yourself.  Title insurance for the buyer can be paid for by either the buyer or seller.  Who pays is often determined by local custom.  The cost is based on the purchase price: the higher the price, the higher the title insurance premium.

Searching the records:  Before issuing a policy of title insurance, title examiners search the public records that affect the property in question: such as liens, judgments and easements.  An easement grants the right to use another person’s property for a specific purpose.  The title search is designed to dig up all of these things and more.  Later, if there is a dispute and a lawsuit over ownership of the property because the title search was faulty, the title insurer pays legal fees and any settlement amount.  Shen you pay for title insurance, you’re paying for two things: the title search and the insurance policy that pays the costs of future legal proceedings.
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