What is Title Insurance?
What is title insurance and what is its significance to a real estate investor? Title insurance is predominantly found in the United States (but it also exists in other countries, such as Canada, Australia, the United Kingdom, Mexico, New Zealand, Japan, China, Korea and throughout Europe,) and it spurred from an alleged deficiency of the US land records laws. If you have to obtain a mortgage, it is most likely required by the lender, and it is an option when purchasing a property for cash, however it is highly recommended.
Real estate buyers usually have two types of title insurance policies:
Title Insurance for Owner’s Policy – Buyers purchasing properties for cash often want title insurance [an owner policy] to protect them from unforeseen claims and disputes. An Owner’s Policy basically provides assurance that your title company will stand behind you.
Title Insurance for Lender’s Policy – Lenders require title insurance [a loan policy] to protect their interest in the collateral of loans secured by real estate. The Lender’s Policy is based on the dollar amount of your loan. It does not protect the buyer.
Since a lender’s policy only protects the lender against loss in any occurrence of a title search, it gives peace of mind to the buyer – it is important to remember the fact that title searches are not 100% reliable, and so the need for insurance. It is not uncommon for old issues to show up on title, even after the property has changed ownership a couple of times, and it is much easier and cost effective to rely on a title policy to “clear the title” instead of incurring legal fees and uncertainties.
What Is Title Insurance – Things that you have to consider?
We are primarily concerned what is title insurance and what we need to
consider when getting one. Before we can even make a decision, we have to understand a couple of things including the technicalities involved.
As a real estate buyer signing up for title insurance, you need to look into:
Prices vary from state to state. Be sure to ask your title company about pricing and whether the Loan Policy and Owner’s Policy are sold separately or together.
1. Find a title company which has a good reputation and long standing in the business.
3. Ask your state insurance department if your area is regulated or not.
The policies are standard and should protect against any or such;
- Errors and Omissions in Deeds
- Undisclosed heirs
- Spousal claims
- Old unreleased liens
3. Responsible Parties.
You have to clarify who will pay what. Title insurance is negotiated on the contract by the buyer and seller. Either one can pay for it. Usually the Seller pays for Owner’s Title Policy, and the Buyer pays for Lender’s Title Policy.
Abraham Lincoln lost his house twice because of cloudy title. If things arise on title down the road, it can get expensive and time consuming trying to clear title and it can jeopardize the marketability of a property.
Overall, what is title insurance to a real estate buyer and lender? It is protection – it is a small price to pay for peace of mind in knowing that you have a policy to protect you.
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