Other types of insurance coverage focus on
possible future events and charge an annual premium – such as
flood insurance or hazard insurance that safeguard against loss from
wind damage. Title insurance protects against loss from hazards and
defects already existing in the title and is purchased with a
Insuring a home’s title begins with a search of public land
records affecting the property. The title agent or attorney working
on behalf of the underwriter examines pertinent documents to
determine whether the property is insurable. Those documents include
deeds, wills, trusts, outstanding mortgages and judgments, property
liens, highway or utility line easements, pending legal actions and
When title problems are disclosed during the search process, they are corrected whenever possible to avoid future claims. According to surveys done by the American Land Title Association (ALTA), title problems consistently arise in one out of three real estate transactions (36%).
The most common actions to cure title defects include:
After all this searching and examination, a title problem may still be hidden or missed, such as:
In each of these cases and many more, when there is appropriate title insurance coverage, a policy will offer financial protection. The title insurer defends the title and either perfects the title or pays valid claims.
Lenders require the homeowner to purchase title insurance, just as
they call for fire insurance and other types of coverage to protect
their financial investment in the property. A lender’s policy
insures that the mortgage is valid and the lien priority is correct. In addition, title insurance is
required for lenders who package and sell their loans in the
secondary mortgage market.
For the homeowner to be covered, he or she must purchase an owner’s policy in addition to the required lender or mortgagee policy.
Owner’s title insurance lasts as long as the policyholder or
his or her heirs have an interest in the property – maybe even
after the homeowner has sold the property. It is either purchased for
an additional premium or an owner may pay a simultaneous issue charge
(usually a smaller amount) for the separate lender coverage.
Title insurance was first issued in 1871 to enable speed and efficiency when property is conveyed, or legally transferred from one owner to another. Because of title insurance, real estate is more marketable and thus more valuable. It has worked so well to protect buyers and lenders against defects in legal ownership that it is spreading around the world.
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