Title insurance is an obscure type of insurance which most of us purchase at least once during our lifetime. Oddly, the purchase of title insurance is often unintended, and therefore its purpose is often misunderstood.
In most cases, title insurance is purchased when you purchase your home. It is also purchased when you obtain most mortgage refinancing loans.
The purpose of title insurance is to guarantee that you have good title to your home. Problems which interfere with good title are numerous. These include the possibility that a prior owner of your home did not fully pay off a mortgage. A prior owner could have also had unresolved court suits or other types of liens that interfere with the good title of your home.
Inadvertent human error may also interfere with the good title of your home. This includes the situation where a bank has not filed the correct paperwork in order to demonstrate that a prior owner has fully paid off their mortgage.
Occasionally, the situation also arises where all prior owners have not fully or correctly signed deeds in order to relinquish, and pass on, their full ownership interest of your home.
The foregoing examples of title problems are very real concerns, and can be easily overlooked. Therefore, your purchase of title insurance, as part of the purchase of your home, is very important.
Title insurance not only protects you, as the homeowner, but also protects the collateral lien which your mortgage lender has placed upon your home. In fact, the vast majority of all mortgage lenders require title insurance for each and every home loan which they issue. For this reason, the homeowner usually has no input in deciding whether to purchase title insurance.
Title insurance is normally required for the purchase of all types of real estate, including commercial properties and land purchases. It is not simply limited to home purchases.
The premium for your title insurance policy is paid on one occasion only. It is usually noted and charged on the settlement statement which lists all of the settlement costs and expenses. This is the settlement statement which is reviewed with you at the time of your purchase or refinance closing.
While the title insurance premium is a one-time premium, it insures you until you ultimately sell your home many years later.
Title insurance premiums are regulated by the state of Pennsylvania. Therefore, they are essentially the same wherever you conduct your closing. However, the premium which you pay is a graduated premium. Therefore, if you are purchasing a lower-value property, you will pay a lower premium in comparison to someone purchasing a higher value property.
Keep in mind that title insurance is different than homeowners insurance. Homeowners insurance, also known as hazard insurance, is the insurance which protects you against fire or other physical damage to your home. Homeowners insurance also protects you against claims of negligence asserted against you by an individual injured while on your property.
Title insurance is also different than mortgage insurance. Mortgage insurance protects the mortgage lender against the possibility that your home will not have adequate value, as collateral, in the event that a mortgage foreclosure should ever occur.
Edward J. Coyle is an attorney with the Buzgon Davis Law Offices. His column appears the first Tuesday of each month.