Image by Leon Seibert

Protecting Your Property Rights

Title Insurance Protects Your Property Rights

Purchasing real estate and making loans secured by real estate comes with risk. Much of that risk has to do with the title to the real estate. The title may contain defects, liens, encumbrances or other matters that can jeopardize the purchaser’s and/or lender’s interest in the property. 

 

But title insurance is a contract of indemnity that protects real estate purchasers and lenders against loss caused by specific covered risks related to real estate title. Instead of the buyer or lender assuming 100% of those risks, for a one-time premium, a title insurance policy shifts much of it to a title insurer.

 

Title insurance protects the policyholder from financial loss related to property ownership. There are two types of policies available in a typical real estate purchase transaction:

 

  • Loan policy 

  • Owner’s policy

Loan Policy

Lenders routinely require a loan policy for which a one-time cost is paid up front. Lenders insist on the issuance of title insurance to protect their interest in the loan. After all, they’re responsible for most of the home's value, especially during a mortgage’s early years. 

 

Once issued, the loan policy protects the lender only as to the validity, enforceability and priority of its lien against title defects. 

Owner's Policy

Although the lender is protected by the title policy, the owner’s stake in the property could be at risk. Unless an owner’s policy is issued, the title insurer will respond only to the insured lender if a title claim should arise after purchase. It is in the best interest of the purchaser to obtain an owner’s policy in order to be protected from their own title risks. Like the lender’s policy, it is a one-time purchase.

 

Covered risks in an owner’s title insurance policy include:

 

  • Title being vested in someone other than the insured

  • Defects, liens or encumbrances on the title including defects caused by forgery; fraud, undue influence, duress, incompetency, incapacity or impersonation

  • The lien of real estate taxes or assessments by a governmental authority due and payable, but unpaid

  • Unmarketable title

  • No right of access to and from the land

  • The violation or enforcement of any law, ordinance, permit or governmental regulation restricting, regulating, prohibiting or relating to the occupancy, use or enjoyment of the Land if a notice is recorded in the public records

  • The exercise of the rights of eminent domain if a notice is recorded in the public records

  • A prior fraudulent or preferential transfer under federal bankruptcy, state insolvency or similar creditors’ rights laws

 

Should any actual monetary loss or damage be sustained by the insured due to a covered risk, the title insurance company will defend the insured’s interest or reimburse the insured for loss, subject to exclusions and exceptions in the policy.