What is Title Insurance?


Suppose you have just purchased your dream home and when you arrive with your moving van you find someone else in your new home claiming to own it. Or, suppose you are one day awakened by a construction crew preparing to bulldoze your entire front yard for a railroad track to be built on the easement claimed to pass through your yard. What if you were to receive a notice of past-due property taxes, which must be paid in a few days or the property will be sold for taxes? Another example would be, if a neighbor claims he owns part of your property and decides to sue you to that effect.

Obviously, these are not pleasant images. So, what can you do? Title Insurance is designed to both prevent these problems from occurring and give you a source of protection if they do.

Title insurance provides a guarantee of ownership of your home. It informs you of the nature of any other interests in the property (liens and encumbrances) and protects you against unknown claims of ownership to or interests in your property. Before a transaction involving a loan or sale of the property is completed, the title company searches appropriate land records to determine ownership, claims, legal documents, and other matters that may affect the property. This search discloses recorded deeds, mortgages, judgments, taxes, liens and other legal matters. The results of the record examination will then be summarized in a preliminary document called a “Commitment for Title Insurance”. This document states the status of ownership and enables the lender or purchaser to evaluate the legal status of title to the property before it is acquired. The commitment also constitutes an agreement by the title company to issue a title insurance policy if certain requirements stated in the commitment are satisfied.

If the commitment for title insurance discloses liens, claims, questions of ownership or other problems, they must be addressed and removed as a part of the sale or loan, or they will continue to affect the property and may make a purchase of the property undesirable. Some liens or encumbrances can be removed by paying the indebtedness. Sometimes liens can be removed or satisfied only with proper court proceedings.

Although Title America makes every effort to eliminate risk involved in the purchase or mortgage of real property, there will always be certain risks and legal issues to be addressed by purchasers and lenders. It is not always possible to find all adverse matters which may affect ownership. A forged or fraudulent document affecting the property, legal incompetence of a person who conveyed the property, lack of authority to convey or improper or inadequate administration of a decedent’s estate may not be disclosed by an examination of the records. Likewise, human error can cause title problems, which may not be disclosed by a search of the records. If someone makes a mistake or if an unknown problem should arise, a known, financially responsible resource should be available to protect you. An owner’s or lender’s interest can be best protected by a title insurance policy.

There are two types of title insurance policies: Owner’s title insurance and Lender’s title insurance. An owner’s policy is issued in the amount of the purchase price of the property and insures ownership of the property for the benefit of the present owner for as long as they own the property. The title insurance policy issued to lenders on the other hand, insures the lender for the original amount of the loan against invalidity of the mortgage which secures the loan. For both owner’s and lender’s policies, a single premium is paid when the policy is issued, and no additional payments are necessary to maintain the coverage. If policies are issued simultaneously to both the owner and the lender on the same property, a substantial premium discount is usually allowed.

Separate title insurance policies protect different interests. Although separate policies of title insurance may insure the same property, a person who is not named as an insured is not entitled to any protection by the policy. A title policy that is issued to a lender does not provide coverage for the owner. Likewise, a prior owner’s policy will not protect a new buyer. For example, if only a loan policy is issued to a lender and title to the insured property is later determined to be invalid as a result of a forged deed, the lender may be compensated for loss, but the owner may still lose the property due to invalid title and will continue to have the loan obligation to the lender. If the owner had obtained owner’s title insurance coverage, the owner would also be compensated for loss of the property according to the terms of the owner’s policy.

If a claim is made against your ownership, your policy protects you by

(1) defending your interest in a court case and paying the costs, attorney’s fees, and expenses incurred for that defense; and

(2) if the claim is shown to be valid, our underwriter will either pay the costs of your claim up to the amount of the policy or undertake the responsibility and expense of perfecting and protecting your title as it was insured, according to the provisions of each individual policy.