In this article, the experts at ANSTitle will discuss why title insurance is crucial to every real estate closing and how each type of policy can protect the respective policyholders against a slew of unforeseen title claims. As a New York title insurance company with decades of experience, we want to educate every real estate buyer about the importance of a clean title and owning a policy to guarantee it.
How Title Insurance Works
As a type of indemnity insurance, title insurance is meant to protect mortgage lenders and real estate buyers from financial losses. The insurance premium is charged as a one-time fee and it is typically included with the closing costs. The money is used to cover the various administrative fees and search activities associated with the title search process.
Once the agent completes the search and clears the title, the title insurance policy is issued. It is meant to guarantee the work of the agent and to cover any costs that the current owner or lender may incur due to unexpected title claims. Â
Types of Title Insurance
There are two types of title insurance and the main difference between them is who is protected by the policy.
Lender’s Title Insurance
As the name implies, this type of policy is issued to the mortgage lender who is financing the purchase of the property. Lender’s title insurance is always required if there is a loan, and it needs to be issued for an amount equal to the mortgage. It is the property buyer’s responsibility to pay for the lender’s policy. A lender’s title insurance policy is active for the duration of the mortgage term, or until the property is sold or refinanced.
How Title Insurance Protects Lenders
Lenders issue mortgages in exchange for the right to take over a property if the owner stops making payments. However, if the owner defaults on their payments and another person makes claims towards the ownership of the property, the lender will have no way of recouping their investment. This is where the lender’s title policy comes in. It allows the mortgagee to recover the remaining balance owed on the mortgage. Â
Owner’s Title Insurance
While the owner’s policy is optional, it is highly recommended that property buyers also have title insurance. Either the home seller or buyer can purchase the policy, however, it is customary for it to be included as part of the seller’s financial obligations in the closing. An owner’s policy remains active for as long as the policyholder is the legal owner of the property covered by the policy.
How Title Insurance Protects Buyers
Title insurance protects the buyer from financial losses that may be caused by the discovery of title defects that already existed but were unknown at the time of purchase. In the event of a title defect discovery, the financial consequences can be devastating without an insurance policy in place. The property owner can lose their equity and even get evicted. The importance of having title insurance becomes apparent.Â
Most Common Title Claims
Throughout our decades of offering title insurance in New York, New Jersey, and other states, we’ve encountered a number of title claim scenarios that would have been catastrophic for our clients should they have not secured a title insurance policy. Below is a list of the most common title defects that may affect property ownership:
- Unpaid property taxes – one or more of the previous owners have not paid the taxes due to the local taxing authority.
- Unknown heirs to a previous owner – individuals who claim ownership of the property based on inheritance.
- Incorrectly recorded property deeds – errors that may have occurred during the recording of past deeds.Â
- Property survey errors – errors that occurred because of an improperly conducted survey or the resulting legal description.
- Forged titles or power of attorney – fake documents that may be used by unauthorized parties to claim ownership.
- Liens from contractors and lenders – money owed to contractors who performed work at the property, or lenders who had issued home equity lines of credit (HELOCs).
- Conflicting wills presented by heirs – individuals claiming ownership based on an alternate will.
- Boundary disputes – owners of neighboring properties claiming the property line is marked incorrectly.
- Building code violations – previous owners who may have done work to the property without adhering to the proper building codes.
- Undocumented encroachments and easements – neighbors or other third parties who claim to have the right to use the property in some aspect.
Be aware that this list is not exclusive. Conducting a proper title search is the best way to avoid falling victim to a bad real estate transaction. Â
What’s Not Covered by the Title Insurance Policy
It is important to mention that title insurance protects only against issues that occurred in the past. It does not cover future events that may happen after the new owner takes over the ownership. This means that if they fail to pay property taxes or money owed to a home improvement contractor, the title insurance policy that was issued when they purchased the property will not cover these scenarios.
Purchasing Title Insurance
Title insurance can be purchased from any national or regional title insurance provider that services the state where the property is located. However, most real estate buyers are not aware that they have the option to shop around for an agent and oftentimes go with the provider suggested by their real estate broker or lawyer. We encourage all real estate buyers to not only compare pricing but also review the reputation of the title insurance agents they are considering.
 If you are looking for a fair title insurance quote from a reputable company with over 50 years of experience in the industry, you should reach out to one of the ANSTitle agents today. We are directly licensed in 33 states and can do closings in any locale across the U.S.
