Title insurance verifies clear ownership of a property to protect against loss. Getting title insurance is standard protocol when a buyer closes on a home purchase. This insurance protects against certain matters that are not on record, such as forgery, missing heirs, and insufficient information about the status of partial property owners. In the event that there are unpaid real estate taxes or liens on a property, title insurance will also cover the legal costs to resolve those issues.
Performing a title search is the first task a title company will complete before issuing a policy. A title search involves looking through all public records related to the purchase property, including deed, wills, trusts, divorce decrees, tax records, court judgments, and bankruptcy filings. The resulting report reveals any red flags about the sale of the property, and allows the insurer to take the appropriate action to resolve any issues. The information revealed in a title report may affect the conditions of your coverage; however, any unverifiable information or issues will be disclosed to the policyholder up front.
When obtaining title insurance, you generally purchase a combination of two policies: a Lender's Policy and an Owner's Policy.
A Lender's Policy protects the interests of your mortgage company. This policy covers the costs of mortgage payments and legal defense should the buyer lose the property.
An Owner's Policy fully protects the buyer's equity in the property against title problems that occured before the new owner gained the title. Should a title problem arise that was not found in the initial title search, the homebuyer is covered for any down payment losses or legal fees.
Homebuyers are required to purchase a Lender's Policy to get a mortgage. An Owner's Policy, however, may not be required by all mortgage companies—but the overwhelming majority of homebuyers opt for the additional coverage that an Owner's Policy offers. Without it, you will lack coverage for payment of legal expenses or other losses in the event of a problem. Additionally, having an Owner's Policy allows you to save on a new Lender's Policy when refinancing—and that alone can cover a good portion of the cost.
The buyer must pay a one-time premium for title insurance, which protects you for as long as you or your heirs have interest in the real estate. However, if in the future you choose to refinance your mortgage or purchase a different property, you will need to pay for a new Lender's Policy. The cost of title insurance will be included in your Good Faith Estimate (GFE), a document reporting all closing costs you will pay at settlement.