Title Insurance Explained
You’ll hear many terms which may be unfamiliar during the home buying process, and title insurance is likely one of them. Very simply stated, title insurance is a type of insurance policy that protects the lender, buyer, and seller from losses due to outstanding liens, responsibilities, or mistakes with respect to the property title.
It is important to keep in mind that title insurance differs from other types of insurance policies such as homeowners, automobile, or health insurance. While these familiar policies provide protection against losses which may occur in the future, title insurance protects against adverse events that may have occurred in the past, before the real estate transaction took place. Also, unlike most other forms of insurance, title insurance costs are paid as a one-time premium at the close of escrow.
What does title insurance cover?
Title insurance protects the parties involved in the transaction from defects such as mistakes in recorded documents, forgery and fraud, outstanding liens, encroachments and easements, as well as other specific items listed in the policy. The list of risks covered by title insurance is far reaching. All parties in the transaction will have the opportunity to review the policy — as well as ask for extended coverage if needed — before it goes into effect.
Why do home buyers need title insurance?
When a buyer purchases a new home or property, they expect to occupy and use it as they wish. The new buyer needs assurance that they will be free of obligations or debts created or agreed upon by a previous owner. The new owner also needs the freedom to sell their property or use it as collateral in the future, if they so choose. Insuring the title secures these rights for the new owner.
How to get title insurance
The good news is that you can leave this one to the real estate and mortgage professionals. Once the title order is opened by your escrow officer or lender, the title agent (or attorney) will begin the title search. Once the recording is confirmed, demands will be paid, funds will be disbursed, and the insurance policy will officially be created. This process is very routine, and most times requires little to no involvement by the buyer.
As with all insurance policies, there may be exclusions, exceptions, and conditions to the coverage. This may limit the coverage of the policy. There is also a chance that certain coverage may not be available in a specific region or area because of regulatory, legal, or underwriting conditions.
What is the cost of title insurance?
Costs vary and are based in part on the value of the property. It is a one-time cost, and coverage continues indefinitely. That means in case of death, your heirs also inherit the coverage. If you sell and give warranties to the new buyer, coverage also continues. Your title agent will be able to tell you the exact cost of title insurance before closing.
Do you have questions about the mortgage or home buying process? Contact South Bay mortgage lender Shawn Carvin today for a free consultation. Shawn is a licensed California mortgage professional with nearly 30 years experience in the financial services industry, half of that focused on mortgage lending. Shawn works with clients throughout the greater South Bay area including Torrance, the Palos Verdes Peninsula, the Beach Cities, Lomita, San Pedro, and other nearby communities, and points beyond.