Sunday, October 14, 2012

What is Title Insurance?

Closings costs can sometimes make or break a real estate transaction.  Both parties have agreed to a sales price, but then the closing statement is sent to everyone and all of the sudden a conflict arises.  The seller is not walking away with as much money as he or she thought she would.  The buyer is now over budget.  The buyer starts going over the closing statement and sees the bill for Title Insurance.  “I have insurance on the home and I even have additional insurance for my mortgage, so what is title insurance?” an individual might ask.  The short answer is that it is one of the most important items on the closing statement.   A buyer needs title insurance whether he is buying through a regular process, short sale or foreclosure.
Many real estate buyers do not understand completely what title insurance is and why it is important.

What is Title Insurance and What does it do?

Title insurance protects buyers from issues that might arise with a piece of property having clear title.  Clear title means that the seller owns the property and no other parties have a valid legal claim of ownership.  This might seem like a simple concept.  The seller has the deed and holds himself out to the public as the owner of the property.  He lives there and has lived there for many years.  No problem right?  Well, maybe.  What if there is an easement across the property?  What if the seller actually owns the property as a partner with another person?  These types of restrictions are found in a title search.  Without the title search and title insurance, a buyer might find himself owning a piece of property that he has only limited access to or that is subject to restrictions on how he uses it.

Title insurance provides assurance that the title company that performed the search and issued the policy will stand behind you if an issue arises with the title.  The title company will provide monetary relief for the policy holder as well as legal defenses if needed.

The short answer; title insurance assures the buyer that they are buying what they think they are buying.

What does a Title Insurance Policy Cover?

A title insurance policy will typically cover title issues such as:
-      Third party interests in the property
-      Third party rights such as leases or options that affect the title
-      Forgery related to the deed or associated documents
-      Errors or omissions in the deed
-      Errors in the examination of records
-      Recorded liens
-      Easements on the land
-      Recorded rights that encumber your usage
There are additional items that are covered depending on the homeowner’s policy.  There are also certain items not covered by a title insurance policy so it is important to review the policy and its guidelines with your closing attorney.

What does a Title Insurance Policy Cost?
Title Insurance is a one-time premium paid at closing.  There are no renewal premiums to pay.  The policy is usually handled by the closing attorney or lender.  The costs vary depending on the local customs and fees of the particular area where you are purchasing property.  It is important to review the policy and its costs with your closing attorney or real estate agent prior to closing.

Title Insurance takes up one line on a closing statement, but it can have a huge impact if a title issue arises.  Our Oak Park real estate attorneys strive to ensure that our clients understand every aspect of the real estate transaction to avoid any mistakes or confusion.  Policies differ in coverage and cost so it is important to discuss your particular policy with your closing attorney.  Title Insurance might not be a catchy topic, but you cannot do without it.

See Our Related Blog Posts:
Hardest Hit Program Keeps a Bad Day from Getting Worse
The Anatomy of a Foreclosure

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