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Title Insurance
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Title Insurance

Title insurance is a policy, usually issued by a Title Insurance company, which guarantees that an owner has title to a property and insures against errors in the title search.

More On Title Insurance

Definition

Title insurance is a policy, usually issued by a Title Insurance company, which guarantees that an owner has title to a property and insures against errors in the title search. The cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller.

Title insurance is a necessary expense in the process of buying a home. It is protection for the lender as well as the buyer against any disputes with the title for the property.

Potential for problems

Although most transactions work out without incident when buying a home, there is the potential for problems with the title. For example, if a previous owner neglected to pay the property taxes. In that case, the local county government puts a lien [link to glossary] on the property until the taxes are fully paid.

Another common scenario that causes a defect a title is a divorce. If the property is co-owned by the seller’s ex-spouse and the ex-spouse never signed the deed transferring the title, this puts a problem on the title. Prior to closing, a title search should be performed to look for these sorts of issues. Mistakes can happen, however, and that is where title insurance helps.

Two types of title insurance

There are two basic types of title insurance. One is for the lender, and one is for the buyer. The buyer generally pays for both types of insurance. The lender requires the buyer to have title insurance for the mortgage. This protects the lender’s funds in case of a loss in a title dispute case. The other type of title insurance is optional, but recommended. It protects the buyer from any financial losses in case of a title dispute. It also serves through the entire period that the buyer owns the property.

Costs

Several factors affect the price of title insurance: The property’s location, price, and the extent of coverage. Certain states allow you to shop around for the best price, but others set a standard price. The title insurance premium is only paid once, at closing. You do not have to pay an annual premium. However, if you refinance, you will need to pay for a new policy.

Although the buyer usually pays for title insurance, the seller can pay instead. The seller may use that as an option to help the sale of the home.