When buying a home, title insurance will certainly come up at
some point. It's an important part of the home buying process,
so it's equally important that you understand what it is and how
it can protect you.
What's a Title?
A title is a written document that shows ownership of property.
It includes the signatures of current owners and a legal
description of the property. A title is also known as a deed.
Before you close on a new home, a title examiner will conduct a
title search. This is a review of public records and legal
documents to ensure that the seller is the true, legal owner of
the property, and that there are no unsettled claims or liens
against the property.
What is Title Insurance?
Title insurance protects the lender (and possibly the homeowner)
against losses that might arise from property ownership
disputes. The importance of title insurance can best be
illustrated through an example:
Let's assume you're buying a house, and that the title search
comes up clean. So you close on the house and move in. Two
months later, a relative of the former owner shows up at your
door, claiming that they were part owner of the property, and
that they never surrendered or signed away their ownership.
This is an ownership dispute, and it could mean you'll have to
go to court to defend your ownership of the property. If you
have title insurance, it will likely cover your court costs.
Let's further assume that the former owner's relative was
telling the truth. This means the title examiner overlooked a
defect or "cloud" on the title. Somewhere along the line,
ownership of the house was not properly transferred. It's not
your fault, but you're still caught in the middle.
In the event that the court rules in favor of the former owner's
relative, title insurance again comes into play. Title insurance
will see to it that the lender is repaid for the mortgage loan,
and that you are repaid for your investment in the property (up
to the maximum amount allowable under the policy).
Your mortgage lender will require you to take out a title
insurance policy in their name. This protects their financial
interests, and it will most likely be mandatory. But the title
insurance that protects you can be purchased separately, and in
some cases you'll be able to choose whether or not to buy it.
If the lender requires that you take out a policy in both their
name and yours, then you have no decision to make. But if your
own coverage is optional under the lender's rules, you have to
make a decision.
Personally, I think title insurance is a relatively inexpensive
purchase, given the peace of mind and protection it affords.
I'll always purchase title insurance when buying a house.
Lastly, keep in mind that title insurance only protects you
against title errors that were made before you closed on the
house. Title errors that take place after you close on the
property will not be covered a title insurance policy.
* Copyright 2006, Brandon Cornett. You may republish this
article in its entirety, provided you leave the byline, author's
note and website hyperlink intact.
About the author:
Brandon Cornett is the editor of HomeBuyingInstitute.com, one of
the Internet's largest and most respected libraries of
home buying
information -- more than 100 expert articles in 12 different
home buying categories! Put this knowledge to use by visiting
http://www.HomeBuyingIn
stitute.com.
