What types of title insurance are there?
There are two types of title insurance - an owner's policy and a loan policy. An owner's policy is issued to the owners of the property while a loan policy protects the mortgage holder or lender.
What's the difference between owner's and lender's coverage?
With an owner's policy, the buyer is provided with coverage of the equity of the home and not only the loan amount. This coverage guarantees the buyers against mistakes on recorded documents, liens or judgments that may be out against said property. A lender's policy will protect the mortgage holder up to the amount of the loan against unrecorded liens, property defects and unknown easements and rights of way that may influence the value of the property.
Why does the seller need to provide title insurance?
A prospective buyer will expect the property to be free of liens not created or agreed to by them, which is what title insurance provides. In most contracts of sale, title insurance is required. A seller needs to guarantee the buyer with evidence that the property they are purchasing is unencumbered by any legal notices or judgments that might limit or jeopardize their potential ownership. As a seller, it is their obligation to deliver a good title to a buyer in paying for the owner's policy.
Why do lenders require title insurance?
Lenders require a full title search and title insurance for their own protection when issuing a note to a borrower. The borrower is responsible for paying the insurance premiums. A title search will reveal anything on the property that has not already been detected. If there is anything that does go undetected, the title insurance will cover the mortgage in question.
If my lender obtains title insurance, why do I need it?
The lender's title insurance policy only covers the amount of the loan issued, which is usually not the same as the full property value. If a problem arises, such as a claim against the property, the lender wouldn't generally be concerned unless it threatened their ability to foreclose on the property or resume its principal and interest. In the event of a claim, there is no liability for the payment of legal expenses for an uninsured borrower.
Why do I need to purchase a new policy when I refinance?
A new owner's policy is not necessary, but when refinancing your home the lender will require you to purchase a new loan policy. Even if it is the same lender you had for your prior mortgage, the existing policy terminates when you pay off that mortgage in your refinance. The lender needs to be reassured that there are no title issues that have come into question since you purchased the property.
For how long is the property owner purchasing title insurance covered?
The property owner is covered indefinitely for the property that is being purchased. This protection will last as long as the owner or any heirs have any interest in the property. When they sell, the purchaser will be required to obtain a new policy. This protects the owner against any claims made against the property that may have come about since the previous policy.
What is a title search?
A title search is a 40-60 year comprehensive search of real estate records (also known as chain of title). The records are reviewed for the document's precision and proper execution throughout the chain of title.
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