What is Title Insurance?
Virtually all mortgage lenders require title insurance on a new mortgage to protect them against title problems that may arise.
This insurance policy is a contract that protects a lender against losses arising through defects in the title to real estate. The title insurance company agrees to provide the lender a legal defense and indemnity for loss if the validity, priority or enforceability of the lien as insured is challenged. It remains in effect, as of its date, through any foreclosure proceedings and acquisitions of title by the lender.
The loan policy they require insures their money, not the owner’s investment. To insure the owner’s investment in their new home against title defects they need an Owner’s Policy of Title Insurance.
An Owner’s Policy will insure the owner against title defects such as:
- Someone else owns an interest in your land due to:
- Forgery
- Fraud: False claims of ownership, forged deeds, wills, signatures, conveyances, instruments, false representations, false records of all sorts, illegal acts of trustees, guardians, administrators and attorneys.
- Impersonation
- Defective recording of any document
- Human Error: Errors in copying, indexing, recording; errors by administrators, executors, trustees, guardians and attorneys; destruction of records.
- Duress, incompetency or incapacity
- Deeds by persons of unsound mind, minors; deeds delivered after death or without grantor’s consent; invalid, suppressed, erroneous wills, missing heirs, unsettled estates.
- Unknown leases, contracts or options
- You do not have any legal right of access to and from the land.
- There are restrictive covenants limiting your use of the land.
- Someone else has an easement on your land.
- There is a lien on your title because of:
- A Mortgage or deed or trust
- A judgment, tax or special assessment
- A charge by a homeowner’s or condominium association
- Your title is unmarketable. Therefore, another person can refuse to perform a contract to purchase, to lease, or make a mortgage loan.
An Owner’s Policy also requires the title company to defend against claims relating to matters which it has insured and to pay costs, fees or expenses incurred in that defense.