A home is usually your largest single investment. When you purchase a home, you purchase homeowner’s or hazard insurance to protect against loss from fire, theft or wind damage.
Title insurance protects against hidden title hazards that may threaten your financial investment in your home. You see, when purchasing a home, you are really purchasing the title to the property – the right to occupy and use the land and improvements.
Other types of insurance focus on possible future events and charge an annual premium. Title insurance is purchased with a one-time premium and safeguards against loss from hazards and defects that already exist in the title.
There are two basic kinds of title insurance: lender or mortgagee protection, and owner’s coverage. Most lenders require mortgagee title insurance as security for their investment in real estate.
Owner’s title insurance lasts as long as you, the policyholder – or your heirs – has an interest in the insured property. Depending on local practices and state law where the property is located, you may pay an additional premium for an owner’s policy or you may pay a simultaneous issue charge for the separate lenders coverage.
Title search and examination is the first step
Insuring a home’s title begins with a search of public land records affecting the property. The title agent or attorney working on behalf of the title underwriter examines pertinent documents to determine whether the property is insurable.
Those documents (among others) include deeds, wills, trusts, outstanding mortgages and judgments, property liens, highway or utility line easements, pending legal actions and notary acknowledgements.
When title problems are disclosed during the search process, they are corrected whenever possible to avoid future claims. According to surveys done by the American Land Title Association (ALTA), title problems consistently arise in 36 percent, or one out of three real estate transactions.
The process of performing title searches and curing title problems does not come cheap. Industry studies find that title insurers spend an average of 92 cents out of every premium dollar as their cost of doing business.
What if a problem is hidden or missed?
After all this searching and examination, title problems may still be hidden or missed. A signature can be forged on a deed; an unknown heir can step forward to claim ownership of the property; a power of attorney used during a property transfer could have been expired or forged; a public record may be incorrect.
In each of these cases and many more, when there is the appropriate title insurance coverage, a policy will offer financial protection (subject to the terms and conditions of the policy). The title insurer defends the title and either “perfects” the title or pays valid claims.
In 2005, title insurers paid approximately $916.4 million in claims, up from $699.1 million the year before.
With title insurance, you have financial protection against covered title hazards. Your home is your most important investment – protect it with an owner’s title insurance policy.