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Title insurance is a type of insurance that protects the holder of the policy from any any claims resulting from defects to the title of real property (real estate). A title is a formal document that gives evidence of ownership of property. When property changes hands from one owner (grantor of title) to another (grantee of title), the new title is recorded with a local government recorder, typically the county. To verify that a title has no "problems", the recorder's records must be searched from the current transaction back to make sure that there are no issues.
Title defects can include, but are not limited to, errors in recording, loss or destruction of records, misrepresentations in the conveyance of title such as forged signatures, undiscovered liens, easements, encumbrances, and more.
Title insurance that protects the lender is required by most mortgage lenders. The price of such a policy is paid by the borrower and is typically part of the closing costs for a loan. It is important to note that this title insurance is lender title insurance and only protects the lender against title claims up to the amount of the mortgage loan. Lender title insurance lasts until the mortgage is repaid.
Title insurance protects against loss due to claims from problems prior to the date of issuance of the title insurance policy.
Home Owner Title Insurance
Borrowers and home owners may also take out title insurance to protect themselves from problems with the title to their home. Even though there was a title search the turned up nothing before the lender title insurance was issued on a property, such a search is not necessarily 100% reliable. For this reason, a borrower/home owner may want to consider purchasing additional owner title insurance.
Unlike lender title insurance, owner title insurance coverage remains in effect indefinitely. Similar to lender's title insurance, owner title insurance only protects against problems that predate the issuance of the policy.
The basic coverage for home owner title insurance is for all defects, liens and encumbrances (except any listed as exceptions in the policy), losses and damages suffered if the title is unmarketable, and coverage for loss if there is no right of access to the land. Additional coverage may be added. It is important for the consumer to understand what is and is not covered.
Home owner title insurance covers the purchase price of the home. It does not increase with increases in the value of the home unless a specific policy providing for that is purchased.
Title Insurance Premium
The premium on title insurance is a one-time fee that usually amounts to between .5 and 1% of the price of a home. This is typically paid at the closing on a piece of property.
Is Title Insurance Worth It?
Many believe title insurance to be over priced because of inefficiencies in the way it is typically sold. Most policies are sold by third party representatives such as realtors, or attorneys. The consumer, although paying the cost, is not the customer of the title insurance company. The third party selling the policy is the title insurance company's customer. Because of this, many say that there is not enough competition and shopping around resulting in artificially high prices.
Claim rates for title insurance are very low, typically much lower than for other forms of insurance. According to the American Land Title Association (ALTA), in 2003 the title insurance industry paid out claims amounting to just over 4% of premiums.
Most homeowners do not have owner's title insurance. Almost all lenders require it to make a loan. It is probably a good idea for owners to consider obtaining owner's title insurance. If they do, they should shop for the best deal, unless, of course, they live in a state where the rate is set by the state. States that do not regulate title insurance rates include: Alabama, District of Columbia, Georgia, Hawaii, Illinois, Indiana, Massachusetts, Oklahoma, and West Virginia.
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