If you’ve ever been through a real estate settlement, you’ll hear the term title insurance thrown out there in the mix of closing costs. Title insurance is an insurance policy that protects buyers and lenders against liens, encumbrances or issues in the title to a property. There are two types of title insurance: lenders’ insurance and owners’ insurance.
Lenders’ Title Insurance: In most cases, lenders require the borrower to purchase a lender’s title insurance policy to protect the lender in a situation where the seller is not legally able to transfer a clear title of ownership rights. Paid for by the buyer, a lenders policy only protects the lender, but ensures a title search has taken place and therefore, giving the buyer some assurance. However, a simple title search does not mean the title is 100% clear, therefore the need for owners’ title insurance.
Owners’ Title Insurance: Considered an option for the buyer, and is often taken out by the seller at the buyer’s request, this policy is to protect the buyer against the same issue of ownership rights. In some instances, a lender’s policy and an owner’s policy are required to be bundled and purchased together. As a result, everyone involved is adequately protected.
If a buyer decides to forego title insurance, they should be aware of situations where properties have one or more owners who may have lost contact with each other. In this situation, the estranged owner can come back and claim his right to the property and the new owner would be responsible for damages. Don’t let this happen to you! If you have questions or concerns about title insurance, give me a call, let’s talk!