Learn the Basics of Title Insurance
Purchasing a home may be the
biggest investment you will ever make.
A title insurance company needs to determine that your rights and
interests to the property are clear.
There are two types of title insurance: Lenders title insurance, also
called a Loan Policy, and Owner's title insurance. The Loan Policy is usually
based on the dollar amount of your loan and protects the lender's interests in
the property against a problem with the title. The policy coverage decreases
each year and disappears as the loan is paid off. Owner's title insurance, in the amount
of the real estate purchase, is purchased for a one-time fee at closing and
lasts as long as you or your heirs have an interest in the property. Owner's
title insurance fully protects the buyer should a problem arise with the title
that was not uncovered during the title search, and pays for any legal fees
involved in defending a claim to your title.
Unlike other forms of insurance that focus on possible future events and charge an annual premium, the American Land Title Association (ALTA) explains that title insurance is a safeguard against loss arising from hazards and defects already existing in the title. Common types of title insurance claims are for the cost of back property taxes that the title company missed in researching a sale, or the cost of a settlement with a neighbor whose new driveway or fence crept across a property line.
There's not a lot you can do to avoid the expense of a title policy when you're buying a home, but there are some things that you can do to lower you cost. You can ask the seller to pay for your coverage. That's actually a requirement in some states and something that can be negotiated in others. You need to find out whether you can get the current title policy already on the house reissued to you by the title insurer or the lawyer doing the new title search. That can save hundreds of dollars, since it will mean a less-involved search if the policy isn't too old. You probably won't be told if that can be done, so be sure to ask. If you buy your own policy in addition to the lender's policy, check your title policy for exceptions that may leave you with less protection than you want. If any exceptions are a concern, ask the title insurer if they can be taken off the policy.
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