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How Does Title Insurance Work?

Updated: Apr 25, 2023

two people at a wooden table with a toy house, clipboard, pen, keys, and calculator

It is not uncommon to go through life paying premiums on all types of insurance policies in order to gain some protection. For instance, you have car insurance to protect you in case you get into an accident, life insurance to protect your family should you die, and health insurance to give you coverage when you are sick so that you can seek treatment.

When you invest in a piece of real estate, you will be offered a title insurance policy at the closing. What does it do to protect you? How does title insurance work?

What is Title Insurance?

Once you make an offer to purchase a piece of property, the ball starts rolling. And, one of the first things that take place is a title search. This is an in-depth look into the property’s history, including public records and property ownership.

A title search will give you access to details about the property before you buy it in case there are any surprises. For instance, you want to make sure that the seller has the right to sell you the property. You also want to confirm that there are no liens, judgments, discrepancies in the chain of title, outstanding mortgages or taxes, any encroachments or easements, and so forth.

Anything that shows up on the title search and causes a defect in the clear title will need to be taken care of as a condition of issuing a title insurance policy. Otherwise, if the title to the property looks clear, then the title company will offer a title insurance policy.

There are two main types of title insurance - an owner’s title insurance policy that protects the new owner and a lender’s title insurance policy that protects the lender’s interest in the property.

What Title Insurance Protects You From

It doesn’t matter how careful and diligent the title examiner is, there is always the chance that something will come up after the transaction is complete and the property is in new hands. Let’s explain.

If you purchase the new home and the title search comes back free and clear, then you may feel as though you are good to go with your new property. Except, the title examiner wasn't aware that a creditor had a large judgment attached to the property since the clerk had erroneously recorded it.

Because you are now the owner of the property, that judgment attached to your new home becomes your responsibility. If you have an owner’s title insurance policy, you’d simply submit a claim and allow it to be handled. If not, then you may find yourself facing a long, expensive battle that could jeopardize your property rights.

Additional title defects that title insurance can protect you from include:

  • Judgments

  • Liens

  • Easements

  • Encroachments

  • Missing heirs

  • Unknown wills

  • Erroneously recorded documents

  • Forced or fraudulent deeds

  • Outstanding mortgages

How to Get Title Insurance

Now that you know more about it, you may be wondering how to get title insurance.

It is common to feel as though title insurance will leave you with another monthly insurance premium due every month, but that is simply not true. Unlike other types of insurance, title insurance has a premium that is due only once. That’s right - you only make one payment at the closing.

For an owner’s title insurance policy, the one premium payment at closing will protect you for as long as you - or your heirs - have an interest in the property. As for a lender’s title insurance policy, only the lender will be protected for the length of the loan.

Learn More About Title Insurance at Conestoga Title

Title insurance is a must-have for anyone investing in real estate. Conestoga Title Insurance Co. not only issues the policies, but they can help explain how to get title insurance and how title insurance works.

To learn more, contact us today.

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