Title Insurance protects owners and lenders from issues of title that could come up. Generally, the type of issues covered by title insurance are issues that affect the ownership of the property, such as a third party or creditor claiming ownership, a defect, lien, or encumbrance on the title to the property. It is a good idea, and often necessary for owners to acquire title insurance to protect against these potential issues. Lenders that have a mortgage secured by the property will also demand a lender’s policy as a condition of the loan to make sure that if an issue of title does come up, the money they loaned is insured.
In this article, we explain the basics about title insurance, including:
- What is Title and Title Insurance?
- What types of things does Title Insurance cover?
- What is a Lender’s Policy
- What is an Owner’s Policy
- How do I get Title Insurance and how much does it cost?
What is Title and Title Insurance?
Title is a right to ownership in property. If I told you that I owned Wrigley Field (I don’t), and you agree to buy it for $100, you might have a well written quit-claim deed that makes it look like you own Wrigley Field, but you don’t. In more common situations when you are buying property, a Title Search will make sure that the person that you are buying the property from has good title, so that you will have good title when you buy it. It is common that the seller of property is not aware of issues of title that exist, which is another reason Title Insurance is Important.
Title Insurance is a one-time payment at closing that protects you throughout your ownership of the property you have acquired. If a lender, 3rd party, creditor, or long lost whoever comes around and says, “I have a claim to that property,” your title insurance should cover those costs up to the policy amount.
What types of things does Title Insurance cover?
Title insurance covers you from issues of title, most commonly these are: Encumbrances, Liens, or other Defects in Title.
A Title Defect can be any issue with the owner’s absolute right to dispose of their property as they see fit. Title defects are an umbrella term that include all issues of title.
Encumbrances are claims against the property, such as easements, liens, or mortgages, that limit the owners title to the property and can prevent them from transferring the property to others.
Liens are claims against property by creditors that give the creditor an interest in the property until what is owed to them has been paid off. It is possible for there to be a lien on property that the owner is unaware of. Common liens are mechanic’s liens, liens for child or spousal support, or property tax liens.
What is a Lender’s Policy?
A Lender’s Policy (Loan Policy) protects the lender, generally up to the amount of its loan. If you are getting a mortgage to purchase property, a lender will most likely demand a loan policy as a condition of the loan to be paid for by the mortgagee. For most people, a Loan Policy is just another cost of using a mortgage to purchase property.
What is an Owner’s Policy?
An Owner’s Policy protects the owner from any defects in title that come up that were not discovered in the title search. The owner’s policy will cover the owner up to the amount of the policy, and generally covers legal fees for defending claims against title to the property. As with any type of insurance, there are non-title risks that would not be covered, as well as exceptions to coverage.
How do I get title insurance and how much does it cost?
Most real estate closings happen at title companies. If you are getting a mortgage, a lender’s title insurance policy will likely be included with your other title costs. It is possible to negotiate with the seller about who will pay how much of the closing costs, but a title insurance policy normally costs around $1,000, depending on the purchase price, endorsements (added coverage for specific circumstances), and other factors.
Call us today at (630) 324-6666 or fill out our confidential consultation form for help with your real estate matter.
.avif)
.svg){kind=small}
