What You Need To Know About Title Insurance

There are two kinds of title insurance: insurance for the owner and insurance for the lender. Both provide important protections for different people in a real estate transaction, but it's important to know the difference between the two and what they cover.

Policy for Owner's Title Insurance

Most owners buy title insurance to protect themselves against possible problems. An owner's policy isn't required, but it usually protects the home buyer from the most common risks, such as:

• Disputes over who owns something, like problems with a will or something similar
• There are still lawsuits, liens, or other claims on the property that make the seller's legal claim worthless.
• Public records that are wrong or incomplete, including honest mistakes like wrong signatures
• Fraud and/or forgery in its purest form
• Unknown easements or other agreements that could limit how the property can be used or lower its value

Even though you don't have to have an owner's title policy, it can give you some extra peace of mind as a buyer. Even if you hire a title company to look into a property, there's always a chance that something will get missed.

Title Insurance for Lenders

Before getting a home loan, a lender will always require the borrower to buy a lender's title insurance policy. The policy is usually given by the title company when their search of the title is done.

The main purpose is the same as that of an owner's policy: to protect the lender from possible losses if the seller is not legally able to transfer title rights. The lender is protected for the amount of the loan. A policy like this, on the other hand, only protects the lender.

If you don't have your own insurance and end up with back taxes, a lender's policy won't protect you, but an owner's title insurance policy will.

Instead of a title policy, you can get a warranty of title.

A warranty of title is a promise from the seller that they legally own the property and that no one else can claim it. If it turns out that someone else has a claim on the property, the buyer has legal recourse against the seller because of the warranty.

Even though a warranty of title comes with many transactions by default, some don't. In estate sales, auctions, and other situations where the seller is not the owner but rather a representative, there may not be a warranty of title because the representative does not know of any competing claims. In this case, a buyer of a home might still want to think about getting a title insurance policy.

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