What is Title Insurance?

 

Everyone asks the question “What is Title Insurance?”  We must first explain that even though there is a title search performed to establish the seller’s legal right to sell the property, there may be hidden defects in the title which an examination of the records could not reveal. For instance, the previous owner could have incorrectly stated his marital status, resulting in a possible claim by his legal spouse. Other problems include things like fraud, forgery, confusion due to similar or identical names, and clerical errors in the records. These defects can arise after you have purchased your home and jeopardize your right to ownership.

Title insurance also protects against any tax liens, unpaid mortgages, or judgments missed in the research of the history of title on the property. If a claim is made against your property, title insurance will, in accordance with the terms of your policy, assure you of a legal defense and pay all court costs and related fees. Also, if the claim proves valid, you will be reimbursed for your actual loss up to the face amount of the policy.

There are two types of title insurance: owner’s title insurance and lender’s title insurance. The owner’s policy protects you, the buyer and is a one-time charge that you pay at settlement based on your sales price. The lender policy protects the lenders interest and you are required to pay for the lender’s policy. Unfortunately, the lenders’ policy is nontransferable even in the event of a refinance, meaning you would be responsible for paying for another lender’s policy.

Why Do I Need Title Insurance?

We at Milestone Title strive to resolve all known title defects to your property prior to closing.  However, we realize that some situations occur that home-buyers, real estate agents and closing professionals cannot foresee. There are numerous unforeseen situations that can cost an uninsured homeowner time and money:  From undisclosed tax liens to forged deeds; a long lost heir; erroneous legal descriptions; an error by the clerk in the county recorder’s office; and a misapplied tax payment.  These are just a few of the possible hidden title defects that could cause you to either loose your home or make it difficult or impossible for you to sell your home in the future.

This is why we offer our customers the most comprehensive title insurance coverage available as our standard form of title insurance, the ALTA Homeowner’s Policy.  The ALTA Homeowner’s Policy was created to benefit the buyer, seller and real estate agent involved in a real estate transaction.  Coverages not traditionally offered by title insurers are included in this policy.  The ALTA Homeowner’s Policy protects insureds from certain covered risks that took place either before and/or after the policy date.  One of the many added benefits is that the policy amount automatically increases each year as a hedge against inflation.

We also offer a basic title insurance policy, the ALTA Owner’s Policy which offers very limited coverage at a slightly lower rate.  See the Owner’s Title Insurance Coverage Comparison Chart below for details.

When do I Purchase Title Insurance?

Title insurance is a one-time premium paid for at the time of your settlement.  There are no annual payments to keep your Owners Title Insurance Policy in force.  Your policy will protect you even after you sell the property or pay off any loans attached to the property. The cost of title insurance is based upon the purchase price of your property and will be reflected at settlement as part of your total closing costs.
In addition to purchasing your Owner’s title insurance policy, your lender will almost always require you to purchase Lenders coverage to protect their interest in the property as the mortgage holder.  Each new lender will want a lender’s policy that is specific to their transaction.

Policy Coverage Comparison Chart

Owner’s Coverage Comparison Chart

Policy Coverage	ALTA 2010 Homeowner’s Enhanced Policy*	ALTA 2006 Owner’s Policy
Someone else owns an interest in your land	Yes	Yes
Someone else has an easement on your land or other rights not listed on your policy	Yes	Yes
You cannot obtain a loan or sell your land because of a defect in title	Yes	Yes
Your land has no actual vehicular and/or pedestrian access	Yes	Coverage for legal access only
A document in your title is forged after the policy date	Yes	No
Your policy amount increases 10% per year up to 150% to cover increases in your property’s value	Yes	No
Your home is damaged due to use by others of an easement on the land, even if the easement is listed in your policy	Yes	No
Restrictive Covenant Violations:
You are forced to move your home due to an existing violation of a restrictive covenant	Yes	No
You lose your land due to an exiting restriction violation	Yes	No
Zoning and Subdivision Violations:
You are unable to sell, build, mortgage or lease your land due to a violation or subdivision law	Yes, subject to lesser of 1% or $2,500 deductible and $10,000 max	No
You are forced to remove existing structures (except boundary walls or fences) due to lack of a prior building permit or zoning violation	Yes, subject to lesser of 1% or $5,000 deductible and $25,000 max.	No
You are unable to use the property as a residence under existing zoning laws	Yes	No
Encroachments
You are forced to remove existing structures because they encroach onto your neighbor’s land	Yes, subject to lesser of 1% or $2,500 deductible and $5,000 max	No
Your neighbor builds a structure (other than a wall or fence) that encroaches onto your property after date of policy	Yes	No
You cannot obtain a loan or sell your property because your neighbor’s structure encroaches onto your land	Yes	No
An enhanced policy costs about 20% more than a limited policy, and policy rates vary by state.
This chart is intended for comparison only.  Please refer to the ALTA Homeowner’s Policy (2-3-10) and the ALTA Owner’s Policy (6-17-06) for specific insuring provisions, conditions, exclusions and exceptions.