What is title insurance? Do I need to buy it? We have your questions answered.
Title vs Deed
The two terms are closely intertwined, however, it’s important to note the distinction between Title and Deed. A Deed is the official written legal document used as a means of transferring ownership from one party to another. Title refers to the concept of ownership and indicates you have the right to use the property, but it is not a physical document. Therefore, at the closing, the buyer will receive the deed, an official document stating they now have title to the real estate. The deed must be signed by both the buyer and seller to be valid, and should be duly stamped and attested (i.e. notarized) in the presence of witnesses.
The Title Company and a Title Search
A title company acts as a liaison between the buyer and seller to legally transfer a property title from one party to another. After you hire a title company, they will conduct a title search on the property and issue a report that verifies that the title is valid, make sure there are no liens on the property (clear title), and that the property can be legally sold by the seller. The title company will also coordinate with the lender to facilitate the signing of loan documents. After the closing, the title company will take care of recording the deed with the county assessor’s office or courthouse and disburse funds to the lender, seller and any creditors.
What is Title Insurance?
When a person purchases a home, they receive a title to the property. This means that they receive full legal ownership of that property. However, in some cases, there can be hidden defects in a prior deed, will, or mortgage, which may give another person a valid legal claim against the property. Liens can be filed against a property causing the title to become defective. A defective title may take away the house and the land on which it is located. Title insurance protects you against such loss.
Lender’s Policy vs Owner’s Policy
A lender's policy is title insurance that protects your lender as an interested party in the real property. When you close on your mortgage loan, title insurance may be included in the amount you pay as a requirement of your lender. This type of title insurance covers the lender against loss or damage suffered by title defects. The lender's policy does not protect you as the owner against title defects.
You can protect your own interest in the property with an Owner’s Title Insurance policy. It protects you against what you don’t know. Over the years, different people have owned the land and buildings that you are purchasing. Each time the title was transferred, there was a chance for error. If an error occurred but was not discovered until you purchased the property, you may face a hidden risk (see examples below). Your ownership of the property could come into question, and you could lose the property and the money you paid for it.
Simply put, the mortgage company has a Lender’s Policy to protect their interest in the money they lend to you. An Owner’s Policy will protect your own interest in the property.
Why should I purchase title insurance?
Generally, insurance is considered to be the payment of a loss due to the occurrence of some future event. Title insurance is unique in that it provides coverage for future claims or future losses due to title defects that were actually created by some past event. These risks are far less obvious than those protected by most other forms of insurance but can be devastating and very costly to the owner of a property.
Some examples of when you might need to call upon your title insurance policy are not as obscure as you might think.
- Mistakes in the title search, the interpretation of a will, or in the recording of the property purchased. A court may also make a mistake and miss items that include liens, improper service or forms that were incomplete or inaccurate.
- Forgery, where a notary was forged, or the license of the notary was expired. This includes any fraudulent action that would include false impersonation, a misrepresentation of a marital status, an inaccurate power of attorney, any false affidavits, or forged documents.
- Incorrect or improper Conveyance that could include the possibility of a divorce or if the property was incorrectly conveyed to the wrong owner or heir.
- If there is a Lien on the property as a result of unpaid taxes which can include estate taxes, inheritance and gift taxes, building or mechanical liens, and corporate liens.
- If a Deed was executed to a minor or any person who may lack the legal capacity to enter into it as specified.
- If the legal description, including easements, was inaccurate or incorrect.
- New Construction – the home may be new, but the land isn’t. There may be existing liens on the land or liens placed on the property during construction.
What are the benefits of an owner’s title insurance policy?
- It is a ONE-TIME charge that covers the property for as long as the buyer owns the property and after that same buyer sells the property. There are no expiration or renewal fees.
- The owners' policy never decreases in coverage. (The lender's policy lowers as the balance lowers with payment.)
- The policy covers the buyer against any actual title issues and fraudulent claims.
- The policy protects the entire ownership claims and protects against any attorney fees.
Rivertowne Title Agency
For even more information, you can visit the website of our affiliated title company: Rivertowne Title
Ohio Title Insurance Calculator
How much will an Owner’s Title Insurance Policy cost you? Click on the link below for a title insurance calculator:
What is Closing Protection Coverage?
The link below will take you to a preview of the form you will sign at closing which outlines what the coverage is for and the associated costs.
Notice of Availability and Offer of Closing Protection Coverage
For transactions where there is a lender involved: click here
For cash transactions: click here
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