Title Insurance Information

By: Calum MacKenzie

Tucked in among all your other closing costs when you buy a house you'll probably find a charge for 'title insurance'. If you're taking out a mortgage to buy a house, your lender will insist that you take out title insurance. This is more than just one more nuisance charge levied by people who are determined to make a few extra bucks on your home purchase. Title insurance offers you some real, tangible security in the event that there's ever a problem with the title to your home.

But I thought that's what the title search was for...

When you agree to buy a house, you want to be sure that the person selling it to you actually has the legal right sell it. The information about who has rights of ownership to a piece of property may be scattered in all sorts of different places. The way that you find out who can buy and sell the property is to hire an experienced researcher who understands all the things that can affect the transfer of a title from one owner to the next.

Because the information is so scattered, though, there is always the chance that some little bit of information might not be recorded or found.

Really, though, what could go wrong with a title?

Let's just say, you'd be amazed. We've heard stories that range from the bigamist's first wife having a claim on the house to the fast-talking con artist who forged ID papers and sold a family's home while they were on vacation. Most title disputes have far more boring causes - an old homeowner's loan that wasn't paid off, a clerk's mistake in filing a document or a dispute arising from a mismarked property line.

So what does title insurance cover?

When you take out title insurance, the insuring company will do a full search of the title records to be sure that they are free and clear, but there's always the possibility that they missed something. If they did, they promise to pay any costs arising from the title challenge and to reimburse you for any losses you incur because of it. In other words, if someone does show up with a claim against your deed, the insurance company will pay the legal costs of defending against the claim. If you lose, they will pay off the cost of the house.

Okay, so what's with the 'lenders insurance' and 'buyers insurance'?

There are two kinds of title insurance. Mortgage lenders require only that you buy 'lenders insurance' because they're looking out for THEIR interests, not yours. In the event that a successful claim is made against your ownership of your house, lenders insurance will pay them any money outstanding on your mortgage. You, however, are out any money that you've already paid on the house, including your down payments.

Owners insurance covers the entire purchase price of the house. If there is a claim against the property, the insurance company will reimburse you any money that you've already paid toward your mortgage and pay off the remainder of the mortgage so that you're not liable for continuing to make the payments on a house that you don't own.

How do I pay for title insurance?

You'll pay for title insurance as part of the closing costs of your house. It's a one time premium that will cover you for as long as you own your home, as long as the claim arises from something that happened before the title search was done. There are no monthly payments - pay once, and you don't have to worry about it again.

It's worth it, wouldn't you say?

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