One of the most common questions that we hear at Crawford Realty Group is what is title insurance?
Title insurance is an indemnity insurance that protects the title holder from financial losses caused from defects in a title to the property. Lender's title insurance is the most common kind of title insurance and is purchased by the buyer only to protect the lender. The seller protects the buyer’s equity in the property by purchasing owner's title insurance which is available separately.
Title insurance is a little different than most insurances which protect against future events. Title insurance protects the policyholder against claims for past occurrences. This insurance protects the owners of real estate and also real estate lenders from damages that occur from incumbrances, liens, or defects in the title and actual ownership of a property. These events happen when there are claims of property ownership by another person, a title document that has been forged, outstanding liens and lawsuits against the property and an identified easement.
There are five major US Title Insurance Underwriters that are usually recommended by escrow and closing agents. The purchase of title insurance is initiated by the agent upon completion of the property purchase agreement.
Since there are two types of title insurance lenders insurance and owner’s insurance, these policies are required by both parties to ensure that everyone is protected. A lender's policy is issued after the completion of a title search. Title searches are not infallible, and the owner remains at risk, and though owner's title insurance is optional, it is often purchased by the seller to protect the buyer from defects in the title.
Foregoing title insurance places all parties in the real estate transaction at significant risk in the event there is a title defect. Events such as discovering back taxes owed on a property by the previous owner will become the responsibility of the buyer without title insurance. The buyer will be at risk of losing their home if they do not pay the outstanding property taxes. Title insurance protects the buyer for as long as they own the property.