Title Insurance FAQ
An owner's policy protects you from others claiming to own your property or claiming a right to use your property, as well as pre-existing liens on the property. A lender's policy insures that a lender that is loaning money on a mortgage loan will have a first lien on your property as well as protecting against claims of others. This is of course a very simplistic explanation.
Unlike other insurance such as auto and homeowner's which protects you from future occurrences (forward looking), title insurance is backward looking. In other words, it protects you from things that have occurred in the past up until the time you officially become the owner.
The title premium that you pay includes a review of the property search to determine if there are any issues that would affect your ownership, making sure that any issues are cleared, and issuance of the final title policy. In some areas, the cost of the search is included in the title premium. The title policy not only insures you against known defects, but hidden defects as well, such as missing heirs of a deceased prior owner, instruments executed by a person lacking legal capacity, mistakes in public records and unrecorded easements among other things.In addition, the title policy covers legal fees if there is a claim made.
No. The policy terms are different. The lender's policy only protects the lender's interest in the property as the first lien holder up to the amount that you owe the lender. As you make your payments that amount decreases and your equity increases. Your equity would be unprotected. Plus, if a claim were made, without title insurance, you would bear the cost of legal expenses to defend against the claim.
Statistically, title companies find problems in about 25% of title searches. Although many of the problems found can be resolved, there are hidden defects that wouldn't be found in a search of the property records. These include matters such as: missing or undisclosed heirs of a deceased prior owner, conflicting dispositions in a will, instruments executed by a person lacking legal capacity, instruments executed through use of an invalid or expired power of attorney, instruments executed under duress, mistakes in the public records and unrecorded easements.
So even though title claims may be somewhat minimal, if a claim does arise and you don't have an owner's policy, you are on your own to pay for legal expenses to defend against the claim.
Any time you obtain a new mortgage loan you will need to provide the lender with a title insurance policy. The property records for your home would only have been searched up to the date that you took title to your property. A new search needs to be completed up to the current date to make sure that there have been no new liens or encumbrances on your property. Your lender wants to make sure that the title to your property is clear and that it is getting a first lien upon recording of the mortgage.
Fortunately most states have a discounted rate for a refinance transaction. Depending on the state there may be some conditions to qualify for the discounted rate. If you are not sure if you qualify, you should always ask. At CLS/CSA we always give the lowest possible rate.
Title insurance rates vary from state to state and can vary from company to company. Some states are "regulated" states, meaning that all rates are the same regardless of what company is issuing the title policy. Some states allow the title companies to set their own rates subject to approval of the state. And in yet other states no prior approval of the rates is required by the state. You should always ask about special discount rates that could apply to a refinance or a purchase transaction.