Understanding the title process
“Title insurance.” Like “escrow,” “earnest money” and “amortization,” title insurance is one of those homebuying terms you feel you should understand but probably…don’t. But have no fear: we’re here to break down and explain this vital part of the homebuying process, and how it can help you fend off serious financial troubles down the road.
Understanding the basics
So, what exactly is title insurance? It’s a special kind of insurance that protects you in case there is defect or problem with a property’s title. It helps protect an owner and/or a lender against any legal action or claims against the property that can arise from disputes over the title.
How does it work?
There are two main types of title insurance policies: Owner’s title insurance and Lender’s title insurance. Each provide similar protection and coverage but are intended for different parties to the transaction (as their names imply).
- An Owner’s title insurance policy assures the new owner that the title to the property is correctly vested with them and that title is free from all defects, liens and encumbrances except those specifically excepted out in the policy’s coverage.
- A Lender’s title insurance policy, also called a loan policy, provides insurance coverage only to the lender in the transaction involving a mortgage, deed of trust or other security instrument.
Why is it important?
So, as an example, if a property is purchased without title insurance protection and is affected by any problems, such as unreleased mortgages, fraudulent acts, or mistakes in public record, then the new property owner (i.e. YOU) would be responsible for dealing with the problem. Uninsured property owners would be tasked with having to potentially fight the case in court, hire an attorney, or even face the prospect of losing their home.
What about if I’m only refinancing, not purchasing?
In a refinance transaction, customarily only Lender’s title insurance is purchased, since the borrower is not covered by insurance issued in this situation. An Owner’s policy can be purchased in conjunction with a loan policy when refinancing, but it’s generally not common.
So, there you have it! Title insurance is an important part of the homebuying process, and a vital way to protect your financial future against unforeseen problems.
Rate, Inc. may choose to recommend Rate Insurance, LLC and/or Advocus Title Agency, LLC to provide insurance and/or title/escrow services. Rate, Inc. has 100% ownership and a direct or indirect financial interest in Rate Insurance, LLC (d/b/a Larchmont Insurance Agency, LLC in California (License 0k09890)) and Advocus Title Agency, LLC. You are not required to use Rate Insurance, LLC and/or Advocus Title Agency, LLC as a condition for, settlement of your loan on, or purchase, sale, or refinance of, the subject property. There are frequently other settlement service providers available with similar services. You are free to shop around to determine that you are receiving the best services and the best rate for these services.
