What is Title Insurance?
If there is something wrong with the title to a property, a title insurance policy will compensate the policyholder. In some states in the United States, the recorder of deeds does not guarantee perfect accuracy in the documentation he or she maintains. This means that if there is evidence of previous fraud or forgery, someone with an older document may be able to file a claim against your newly purchased home. Title insurance reimburses you for the cost of “perfecting” your title rights or compensates you if you are forced to abandon your property entirely.
Every title insurance policy provides coverage for either the homeowner or the lender who financed the mortgage on the property on which the policy is issued. In order to qualify for a mortgage, lenders typically require you to pay for lender’s title insurance as part of your closing costs. It is mostly optional to purchase homeowner’s title insurance, and it is usually paid for by either the seller or the buyer of the property. It is important to understand that title insurance coverage begins when you purchase the policy and continues indefinitely into the past, protecting you against both known and unknown inconsistencies in the property’s documented history of ownership.
Why Do You Need It?
The purchase of lender’s title insurance is a requirement of the mortgage application process. However, as a homeowner, it is often a good idea to purchase title insurance for your own protection. The purchase of property is an investment, and like any investment, it is essential to protect it. Credit checks will give lenders an idea of how likely a borrower will be able to repay the loan, and many different types of federal protections exist to protect lenders. However, borrowers need protection as well. In a variety of situations, title insurance may be able to compensate the borrower for damages or legal expenses.
Title insurance protects you from the following:
- There are liens and easements on the property that were previously unknown.
- Transfers of ownership rights in real estate that have been forged
- Errors that occur accidentally in the recording or filing of documents
- False claims as the owner or on the property
- Undisclosed heirs
- Fraud
Any other title defects that existed prior to the start of your policy will be covered by your policy.
