Title insurance is the application of the general principles of insurance to real estate titles. But, unlike other types of insurance which protect the insured against loss due to unexpected future events, title insurance protects against loss which may occur due to events that took place in the past. Specifically, title insurance protects the buyer against loss resulting from previously unreported land title defects insured against, such as forgeries, claims by missing heirs, recording errors, etc.
What are the principal features of title insurance?
If a future claim against the title to real property results either in the loss of title to the property, or expenses to clear up title defects uncovered by such claims, title insurance will provide compensation up to the face amount of the policy.
Should a future claim against the title to property require legal defense, Lawyers Title will work with the insured to provide for legal defense of the title and to pay the cost of defense, even if the costs exceed the face amount of the policy. This is true regardless of how many claims are brought during the life of the policy.
A title search of the public records conducted prior to issuing a title insurance policy reveals the rights a buyer has with regard to future development of the property. These include rights of way, easements, etc., as well as restrictions that may have been placed on the use of the property by previous owners.
Single premium/permanent insurance:
For the cost of a single, one-time premium, title insurance protects the property owner against loss resulting from any title defects to the property covered in the policy for as long as the property is owned.
What are the principal forms of title insurance?
There are two principal forms of title insurance:
The owner’s policy, which protects the property owner against loss resulting from defects in the title.
The mortgage policy, which insures that the holder of the mortgage has a valid lien on the property and indemnifies the holder of the mortgage against loss resulting from title defects insured against.
Why are two kinds of policies sometimes needed on a single property?
If a buyer pays cash for a property, only owner’s title insurance is needed. In cases where capital is borrowed to purchase the property, the mortgage policy protects the lender’s invested capital by insuring a valid lien in case the mortgage is foreclosed. This protection enables the mortgage lender to sell the mortgage to other types of investors, such as insurance companies, which in turn act to bring in “new” money from other parts of the country for use in local mortgage lending.
What is the difference between property/casualty insurance and title insurance?
Property/casualty insurance protects the property owner against future events which might adversely affect the value of his or her property, such as fires, floods, etc. It is written for a fixed term for which the company receives a stated premium. At the end of this period, premiums may increase or decrease in line with the company’s loss experience.
A title insurance policy, on the other hand, is or can be perpetual as to term. Only one initial premium is charged for the risks that are assumed and carried over the years.