The importance of protecting an investment such as a home – the purchase of which is often the largest single financial investment an individual will ever make – cannot be overestimated. Title companies play a major role in ownership protection, and are involved in the real estate transaction through (and beyond) closing. Understanding just what the title company does is important in any real estate transaction.
Title insurance is the application of the principles of insurance to risks. These risks are comprised of human errors, and hidden hazards that can’t be detected in the examination of title. The latter may include forgery, incompetence of grantor or mortgagor, unknown heirs, fraud and impersonation.
What the title company does
A title company searches and examines public records to investigate information about title to the property. The information is then used to create a “Preliminary Report” that the lender or purchaser receives before closing. The report contains the following information.
- The legal owner of the property
- Confirmation that the estate or degree of ownership being sold is currently and accurately vested in the seller
- Property tax status
- Additional public or private assessments
- Presence of any unsatisfied mortgages, judgments or liens that must be satisfied before conveyance of clear title
- Existing easements, restrictions, rights of way, or other rights granted to others
Lender’s and owner’s policies
Unlike other kinds of insurance, title insurance protects against future losses that may arise from events that have taken place in the past. Also unlike other kinds of insurance, there are no annual premiums. Instead, the homeowner pays one premium, based on the amount of the sale or mortgage, when the policy is issued. It is good for the life of the policy.
A lender’s policy, which insures the lender, remains in effect until the loan is paid off. An owner’s policy, which insures the buyer, remains in effect as long as the owner (or heirs) owns the property.