Title Insurance: What is it and Why Should I Buy It?
Title Insurance is a form of indemnity insurance, which protects owners and mortgage lenders against financial loss resulting from challenges or defects in the title to real estate. Prior to the transfer of ownership, a satisfactory title examination is required to issue the policy. These policies protect a policyholder against loss from some occurrence that has already happened but is not shown in the public record, such as a forged deed somewhere back in the chain of title. Title insurance will typically cover the policyholder’s attorney and court expenses, or pay for financial loss caused by unknown defects, subject to the policy’s terms and limitations.
Title insurance is the only insurance that protects purchasers and owners against loss due to an unforeseen title defect. Although an owner’s title insurance policy is optional at the time of settlement, Sage Title Group™ and Sage Premier Settlements™ encourage consumers not to waive their right to purchase this protection.
Lenders require mortgage title insurance as a condition for obtaining a loan whenever you purchase or refinance real estate. A lender’s title insurance policy protects the lending company against a financial loss or expense incurred due to issues related to title.
How does Title Insurance differ from other types of insurance?
Title insurance insures loss from past events, while other types of insurance cover loss from future events.
When first buying real estate, we recommend purchasing an owner’s title insurance policy in the same amount as the contract sales price. Title insurance is a one-time purchase, not a recurring expense like automobile or homeowners insurance.
How do I find out about the title of my house?
As part of our settlement service, Sage Title Group™ and Sage Premier Settlements™ and affiliate Mid States Title of SW Virginia order a thorough title search that results in a detailed history of the property based on recorded documents such as deeds, liens, and judgments maintained and indexed at the courthouse in the jurisdiction where the property is located. Occasionally, however, the system used by a courthouse for indexing and recording documents related to real property can be subject to flaws and inconsistencies, and the title company’s investigation may not discover them.
What are the most common title defects?
Typically, defects that can appear on a property’s title are a matter of public record, such as unreleased mortgage liens, medical and utility judgments, and mechanics liens. Other defects that can cause a more substantial loss of your investment, and lead to higher legal fees are more dangerous and often hidden. The following examples are not common, but do occasionally occur:
- Forged deeds, releases, wills or other legal documents
- Failure of spouses to join in conveyances
- Undisclosed or missing heirs
- Deeds from minors, illegal aliens or persons of unsound mind
- Errors in indexing public records
- Liens for unpaid taxes including estate, inheritance, income or gift taxes
- Mistakes in recording legal documents
- Deeds from defunct companies, corporations
- Unprobated wills
How Does Title Insurance protect a property owner against hidden title defects?
There are two types of title insurance policies available to consumers at the time of settlement.
A “Standard Policy” is based on the sales price of the home at the time of closing, and does not escalate in value with the home’s appreciation over time.
An “Enhanced Policy” does offer an escalation as the value of a home appreciates. Under an enhanced policy, the homeowner may be able to recover up to 150 percent of the original purchase price should a gap in the title occur.