Understanding Title Insurance
What is title insurance?
Newspapers refer to it in the weekly real estate sections and you hear about it in
conversations with real estate brokers. If you've purchased a home you may be familiar
with the benefits of title insurance. However, if this is your first home, you may wonder,
"Why do I need yet another insurance policy?" While a number of issues can be raised by
that question, we will start with a general answer.
The purchase of a home is one of the most expensive and important purchases you will
ever make. You and your mortgage lender will want to make sure the property is indeed
yours and that no one else has any lien, claim or encumbrance on your property.
The Land Title Association, in the following pages, answers some questions frequently
asked about an often misunderstood line of insurance -- title insurance.
What is the difference between title insurance and casualty insurance?
Title insurers work to identify and eliminate risk before issuing a title insurance policy.
Casualty insurers assume risks.
Casualty insurance companies realize that a certain number of losses will occur each
year in a given category (auto, fire, etc.). The insurers collect premiums monthly or
annually from the policy holders to establish reserve funds in order to pay for expected
losses.
Title companies work in a very different manner. Title insurance will indemnify you
against loss under the terms of your policy, but title companies work in advance of
issuing your policy to identify and eliminate potential risks and therefore prevent losses
caused by title defects that may have been created in the past.
Title insurance also differs from casualty insurance in that the greatest part of the title
insurance premium dollar goes towards risk elimination. Title companies maintain "title
plants" which contain information regarding property transfers and liens reaching back
many years. Maintaining these title plants, along with the searching and examining of
title, is where most of your premium dollar goes.
Who needs title insurance?
Buyers and lenders in real estate transactions need title insurance. Both want to know
that the property they are involved with is insured against certain title defects. Title
companies provide this needed insurance coverage subject to the terms of the policy.
The seller, buyer and lender all benefit from the insurance provided by title companies.
What does title insurance insure?
Title insurance offers protection against claims resulting from various defects (as set out
in the policy) which may exist in the title to a specific parcel of real property, effective on
the issue date of the policy. For example, a person might claim to have a deed or lease
giving them ownership or the right to possess your property. Another person could claim
to hold an easement giving them a right of access across your land. Yet another person
may claim that they have a lien on your property securing the repayment of a debt. That
property may be an empty lot or it may hold a 50-story office tower. Title companies work
with all types of real property.
What types of policies are available?
Title companies routinely issue two types of policies: An "owner's" policy which insures
you, the homebuyer for as long as you and your heirs own the home; and a "lender's"
policy which insures the priority of the lender's security interest over the claims that
others may have in the property.
What protection am I obtaining with my title policy?
A title insurance policy contains provisions for the payment of the legal fees in defense of
a claim against your property which is covered under your policy. It also contains
provisions for indemnification against losses which result from a covered claim. A
premium is paid at the close of a transaction. There are no continuing premiums due, as
there are with other types of insurance.
What are my chances of ever using my title policy?
In essence, by acquiring your policy, you derive the important knowledge that recorded
matters have been searched and examined so that title insurance covering your property
can be issued. Because we are risk eliminators, the probability of exercising your right to
make a claim is very low. However, claims against your property may not be valid,
making the continuous protection of the policy all the more important. When a title
company provides a legal defense against claims covered by your title insurance policy,
the savings to you for that legal defense alone will greatly exceed the one-time premium.
What if I am buying property from someone I know?
You may not know the owner as well as you think you do. People undergo changes in
their personal lives that may affect title to their property. People get divorced, change their
wills, engage in transactions that limit the use of the property and have liens and
judgments placed against them personally for various reasons.
There may also be matters affecting the property that are not obvious or known, even by
the existing owner, which a title search and examination seeks to uncover as part of the
process leading up to the issuance of the title insurance policy.
Just as you wouldn't make an investment based on a phone call, you shouldn't buy real
property without assurances as to your title. Title insurance provides these assurances.
The process of risk identification and elimination performed by the title companies, prior
to the issuance of a title policy, benefits all parties in the property transaction. It
minimizes the chances that adverse claims might be raised, and by doing so reduces
the number of claims that need to be defended or satisfied. This process keeps costs
and expenses down for the title company and maintains the traditional low cost of title
insurance.
Article by CLTA
Newspapers refer to it in the weekly real estate sections and you hear about it in
conversations with real estate brokers. If you've purchased a home you may be familiar
with the benefits of title insurance. However, if this is your first home, you may wonder,
"Why do I need yet another insurance policy?" While a number of issues can be raised by
that question, we will start with a general answer.
The purchase of a home is one of the most expensive and important purchases you will
ever make. You and your mortgage lender will want to make sure the property is indeed
yours and that no one else has any lien, claim or encumbrance on your property.
The Land Title Association, in the following pages, answers some questions frequently
asked about an often misunderstood line of insurance -- title insurance.
What is the difference between title insurance and casualty insurance?
Title insurers work to identify and eliminate risk before issuing a title insurance policy.
Casualty insurers assume risks.
Casualty insurance companies realize that a certain number of losses will occur each
year in a given category (auto, fire, etc.). The insurers collect premiums monthly or
annually from the policy holders to establish reserve funds in order to pay for expected
losses.
Title companies work in a very different manner. Title insurance will indemnify you
against loss under the terms of your policy, but title companies work in advance of
issuing your policy to identify and eliminate potential risks and therefore prevent losses
caused by title defects that may have been created in the past.
Title insurance also differs from casualty insurance in that the greatest part of the title
insurance premium dollar goes towards risk elimination. Title companies maintain "title
plants" which contain information regarding property transfers and liens reaching back
many years. Maintaining these title plants, along with the searching and examining of
title, is where most of your premium dollar goes.
Who needs title insurance?
Buyers and lenders in real estate transactions need title insurance. Both want to know
that the property they are involved with is insured against certain title defects. Title
companies provide this needed insurance coverage subject to the terms of the policy.
The seller, buyer and lender all benefit from the insurance provided by title companies.
What does title insurance insure?
Title insurance offers protection against claims resulting from various defects (as set out
in the policy) which may exist in the title to a specific parcel of real property, effective on
the issue date of the policy. For example, a person might claim to have a deed or lease
giving them ownership or the right to possess your property. Another person could claim
to hold an easement giving them a right of access across your land. Yet another person
may claim that they have a lien on your property securing the repayment of a debt. That
property may be an empty lot or it may hold a 50-story office tower. Title companies work
with all types of real property.
What types of policies are available?
Title companies routinely issue two types of policies: An "owner's" policy which insures
you, the homebuyer for as long as you and your heirs own the home; and a "lender's"
policy which insures the priority of the lender's security interest over the claims that
others may have in the property.
What protection am I obtaining with my title policy?
A title insurance policy contains provisions for the payment of the legal fees in defense of
a claim against your property which is covered under your policy. It also contains
provisions for indemnification against losses which result from a covered claim. A
premium is paid at the close of a transaction. There are no continuing premiums due, as
there are with other types of insurance.
What are my chances of ever using my title policy?
In essence, by acquiring your policy, you derive the important knowledge that recorded
matters have been searched and examined so that title insurance covering your property
can be issued. Because we are risk eliminators, the probability of exercising your right to
make a claim is very low. However, claims against your property may not be valid,
making the continuous protection of the policy all the more important. When a title
company provides a legal defense against claims covered by your title insurance policy,
the savings to you for that legal defense alone will greatly exceed the one-time premium.
What if I am buying property from someone I know?
You may not know the owner as well as you think you do. People undergo changes in
their personal lives that may affect title to their property. People get divorced, change their
wills, engage in transactions that limit the use of the property and have liens and
judgments placed against them personally for various reasons.
There may also be matters affecting the property that are not obvious or known, even by
the existing owner, which a title search and examination seeks to uncover as part of the
process leading up to the issuance of the title insurance policy.
Just as you wouldn't make an investment based on a phone call, you shouldn't buy real
property without assurances as to your title. Title insurance provides these assurances.
The process of risk identification and elimination performed by the title companies, prior
to the issuance of a title policy, benefits all parties in the property transaction. It
minimizes the chances that adverse claims might be raised, and by doing so reduces
the number of claims that need to be defended or satisfied. This process keeps costs
and expenses down for the title company and maintains the traditional low cost of title
insurance.
Article by CLTA
Still have questions? Contact me today for a
free consultation!
free consultation!
Colin O’Neal
Buyer’s Agent
200 Rufe Snow North, Suite 202
Keller, TX 76248
(817) 898-0145 Office
(817) 898-1771 Fax
colin@househuntersdfw.com
Buyer’s Agent
200 Rufe Snow North, Suite 202
Keller, TX 76248
(817) 898-0145 Office
(817) 898-1771 Fax
colin@househuntersdfw.com
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