Whether the transaction involves a multi-million dollar office building or a single-family residence, title insurance provides protection against problems affecting real estate titles. There are two types of title insurance-Lenders title insurance, also called a Loan Policy, and Owner’s title insurance.
A Loan Policy is based on the dollar amount of the loan and protects the lender’s interests in the property should a problem with the title arise.
Owner’s title insurance is issued in the amount of the real estate purchase. A policy is purchased for a one-time fee, and lasts as long as the owner or his/her heirs have an interest in the property.
Title insurance has protected property owners for more than 125 years. The first title insurance company was founded in 1876 by a group of Philadelphia conveyancers. Until that time, conveyancers were responsible for personally searching title records to determine ownership of the land and encumbrances on the title and rendering an opinion that title was clear. However, there were limits on the guarantee that the conveyancer could provide. This led to an historic court decision in 1868 encouraging the creation of title insurance which brought a new dimension of security and stability to the real estate market.
Title insurance is issued by “monoline” title insurance carriers, which are heavily regulated by each state for solvency and consumer protection. By law, only licensed title insurers can issue title insurance.
Prices, and the way title insurance is issued, vary from state to state. On a typical $500,000 to $1,000,000 refinance loan, lender’s title insurance costs approximately $1,700-$2,900.
Title insurance costs go toward searching, examining and maintaining title records, resolving or clearing title defects, attorneys’ fees and other costs associated with defending a lender or property owner against title-related issues, and the payment of actual claims.
A loan Policy protects the lender against title risks for the amount of the loan and lasts as long as the loan exists. Such risks may include forged signatures in the chain of title, recording errors, unpaid real estate taxes and other recorded liens, defective foreclosures, title search errors, undisclosed easements, and title claims by missing heirs and/or ex-spouses. The insurance also covers the duty to defend in the event of a title challenge.
Owner’s title insurance fully protects the buyer should a problem arise with the title that was not uncovered during the title search. Owner’s title insurance includes negotiating with third parties and paying claims and legal fees involve in defending the title.
A title search includes examining records in the offices of recorders or registers of deeds, clerks of courts and other municipal and county officials, or similar records housed in a title company’s “title plant”. These records cover all recorded documents, judgments, other liens, general taxes, street easements, sewer assessments, special taxes and levies, and other matters. This review of records provides advance warning so problems can be eliminated whenever possible.
In addition to matters shown by public records, other title problems may exist that cannot be discovered in a search. Examples include a forged deed that transfers no real title to real estate, a claim against a property by a previously undisclosed heir or a former owner, an honest mistake in determining the status of the title, and many other undisclosed title defects. So title insurance is highly recommended to protect against these unforeseen problems.
No. During a refinance, a new loan is obtained. The lender will always require a Loan Policy to protect against any title problems that may have arisen after the original purchase. If it has been less than 10 years since the original policy was issued, oftentimes “re-issue” or other discount rates are available.
However, you do not need to purchase a new Owner’s policy during a refinance. The original Owner’s policy is good for as long as you or your heirs have interest in the property.
Title companies make substantial efforts to correct and eliminate all problems before insuring. That’s why most homeowners don’t have to experience title problems. To use an analogy, saying that low claims means we don’t need title insurance is like saying that you don’t need to sterilize the equipment in a hospital operating room because of the low incidence of infections. The reason you don’t have infections is because of the sterilization procedures in the first place.
Courtesy of American Land Title Association (ALTA)