How does title insurance minimize risks and claims in real estate transactions?
Since its inception title insurance has offered protection that is significantly different than other lines of insurance. Typically, other types assume a particular risk and provide financial indemnity in the event the risk occurs. Title insurance, on the other hand, emphasizes loss prevention by eliminating risks caused by title problems arising from past events.
Besides minimizing the possibility that title hazards will threaten ownership or use of property, the concentration on risk elimination greatly reduces the number of claims to be defended against or satisfied by the insurer.
With other types of insurance, an annual premium is usually paid. For title insurance it is a one time fee paid at closing.
There are two basic kinds of title insurance - owner's and lender's. In a typical residential transaction the title policy often required by the mortgage lender will not safeguard the rights and interests of the home buyer. Separate owner's title insurance is necessary to protect the buyer.
Owner's title insurance is typically issued in the amount of the real estate purchase price and remains in effect for as long as the owner, or his or her heirs, retain an interest in the property. In addition to identifying risk before a transaction is completed, owner's title insurance will pay for valid claims and will pay the defense costs against attacks on the title.
Who pays for the owner's title policy is a matter of local custom. In some parts of the country the seller purchases the owner's title insurance for the buyer, in effect telling them the title is clear. In other parts of the country both lender's and owner's title insurance is issued simultaneously, and in still others the buyer must ask for owner's title insurance and pay separately for it.
Lender's title insurance assures the lender of the validity, priority, and enforceability of its lien (mortgage) - serving as protection for the lender's security interest in real estate. Lender's title insurance is issued in the amount of the loan and liability decreases as the mortgage debt is reduced.
Gambling that the title insurance of the lender will meet the needs of the buyer can be costly. For example, a utility company may decide to exercise a previously undisclosed easement and construct a power line through the buyer's yard. This can have serious consequences for the buyer's ownership without adversely affecting the lender's security interest. Owner's title insurance would protect the owner's interest in the property in this situation.
*Copyright ALTA (American Land Title Association)
If you are in the market for title insurance get a "Quick Quote" from myClosingSPACE.com today.
|