What does Title insurance cover and does it help me, the buyer?

Question

I have started the prequal paper work, am determined to continue with researching a pre foreclosure home that I was told about by a friend, and am a bit nervous about how much I don't know about buying real estate. I am told I will have to pay for title insurance to protect the lender. What does this policy cover, is it sufficient protection for me as well and how much does it cost?

Answer 1

I can only add a little to what has already be said in other answers, and perhaps just put some of the same things said in a different light.
First up, Title Insurance is required by all lenders. Its their indemnity policy to protect them against loss.The fact that the insurer issues a policy to the lender who requires you to foot the bill indicates that the title has been searched. But no title search is 100% reliable.
Title insurance protects from claims arising prior to the date of the policy, coverage going back into time indefinitely, lasting as long as you or your heirs have any interest in the property. The home you are about to purchase could have changed hands a number of times and at any time there could have been fraud, fault, unpaid taxes that emerge later to cause trouble.
A very important point raised by others in their answers is that you need to get an owner's title policy for the full value of the home. That's because the lender's policy doesn't cover your equity, which hopefully will build in value over time. That's what Bostonianinmo is referring to.
The cost of the obligatory lender's policy varies from state to state because the services paid for vary. In some states the premium covers protection only and costs of search and title exam are covered separately. Each state has different regulatory regimes which affect the charges.
Check out the glossary on the site I have referenced as a source for specific foreclosure terminology.

Answer 2

Title insurance protects against financial losses due to a cloud on a title. You are required to provide lender's coverage; it's standard throughout the industry. The lender's policy does NOT protect you, however. It only covers the lender's interests. That might not be such a big deal in the early years of a loan but later on as your equity grows it could become a BIG issue.

If you know that you'll only be there for a couple of years it may be safe to forego an owner's title policy. But if you even think that you may be there for the long haul you should purchase a buyer's policy as well. Typically the premium for this will be between 25% and 50% of the cost of the lender's policy since it provides little extra coverage in the early years and finding clouds on a title after many years is fairly rare. It does happen though and can be financially ruinous if you're not covered.

Answer 3

The only way it will protect you is if you purchase an Owners Title Insurance Policy. Your lender will require a policy to cover them and their mortgage. The title policy is an insurance policy. The title company checks the records in the court house and first give a commitment letter, prior to purchase. This basiclly says who is selling, who is buying, how much its being purchased for, the legal description, and will list any exceptions to the title shown of record in the county courthouse. The list of exceptions, will be things like taxes that are due and not paid, mortgages of record, easements of record, any judgments or liens which would affect the property, pretty much anything that is wrong that the title insurance does not insure over. After the sale, the title policy is issued. The lenders policy insures the lender under their mortgage. The Owners Policy insures the Owner. The policies would insure that the matters shown on the policy, of record, are the only matters affecting the property. Then if someone came and say said "I own this property" and had a valid claim (a deed was recorded and the title company missed it) or a lien was filed and the title company didn't show and the lien holder came after you for payment, then the title company would have to defend or pay the value of the policy. It 's a good idea to have title insurance, and your lender will require it. The owners policy is a good idea.

Answer 4

Title Insurance policies vary in price and in different areas.
Title insurance is insurance against loss from defects in title to real property and from the invalidity or unenforceability of mortgage liens. It is available in many countries but it is principally a product developed and sold in the United States. It is meant to protect an owner's or lender's financial interest in real property against loss due to title defects, liens or other matters. It will defend against a lawsuit attacking the title as it is insured, or reimburse the insured for the actual monetary loss incurred, up to the dollar amount of insurance provided by the policy.

Answer 5

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