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A First-Timer's Guide to Title Insurance

Imagine this – you've purchased your new home, unpacked the moving boxes, and have finally started to settle in, only to receive an angry phone call a few days later from someone claiming to be the property's rightful owner. It turns out that the seller was a fraud using forged papers to sell a home that wasn't theirs! The worst part? Legally, the home doesn't belong to you, either. The tragedy!

A R T I C L E S O U R C

A R T I C L E S O U R C E : H T T P : / / W W W . U P D A T E R . C O M / M O V I N G - T I P S / A - F I R S T - T I M E R S - G U I D E - T O - T I T L E - I N S U R A N C E Imagine this – you've purchased your new home, unpacked the moving boxes, and have finally started to settle in, only to receive an angry phone call a few days later from someone claiming to be the property's rightful owner. It turns out that the seller was a fraud using forged papers to sell a home that wasn't theirs! The worst part? Legally, the home doesn't belong to you, either. The tragedy! While this may seem like a far-fetched scenario, over half of all real estate transactions have title-related issues of some kind. Luckily, these disasters are preventable with title insurance — if you can actually figure out how it works! Many new home owners don't quite understand what title insurance is, let alone why it's a necessary purchase. But with this plain English guide, you'll learn what title insurance is in a nutshell and how it will help protect your investment. 0 9 First Things First – A GlossaryTitle insurance jargon is notoriously confusing, so here are a few key terms translated for first-timers: Title: A title is the document that proves an individual legally owns a property. Escrow: Escrow is the period of time where a third party (such as a title company) holds the funds for the home sale until the transaction is ready to be completed. Title search: During escrow, the title search is conducted to find mishaps in past titles for the property. Lien: If an individual owes money to someone else, that person (the lienholder) can become the owner of the debtor's property until the debt is paid.Now that you've mastered the lingo, let's talk about title insurance! Owner's Insurance vs. Lender's InsuranceThere are two types of title insurance: lender's insurance and owner's insurance. Lender's insurance only protects whoever is issuing the mortgage loan (like a bank), and the policy cost is a percentage of the loan amount — not the home's sticker price. As you make mortgage payments, the policy amount will go down, and once you pay off the loan, the policy ends. Owner's insurance, on the other hand, protects the home buyer from title-related issues that may arise, even after a thorough title search. The price is based on the total cost of the home, not the loan amount. You pay a one time title insurance fee upon closing, and your policy is valid for as long as you own the home. Is title insurance even necessary?Nearly all lenders require a lender's policy to protect their investment in the property — there's no getting around it! In contrast, owner's policies are optional. Though a title insurance company may offer a discount for buying both policies together, there is no requirement to purchase an owner's policy in addition to a lender's policy. You're probably wondering — why bother paying for an owner's policy if it's not mandatory? Remember that your lender's policy only covers the lender's investment, or the value of the loan. This means that the home's total value isn't covered, so an owner's policy is a small price to pay for protecting the total cost of your investment. Even if you never have to file a claim, your peace of mind is priceless!

The Policy Purchase ProcessBefore being issued a policy, a title search is conducted to find previous title problems. Any issues are brought to the seller's attention, and it's usually the seller's responsibility to resolve the issues. It's pretty unlikely, but should a seller choose not to clear the title and the insurance company refuse to provide coverage for those issues, you assume the risk of any legal trouble that may arise in the future. Once your title search is complete, you'll be issued a title insurance policy that essentially guarantees three things: 1) a title search was completed as thoroughly as possible, 2) any title problems were solved and/or accounted for by the policy, and 3) the title insurance company will have your back for any mishaps, so long as they are included in the policy and don't exceed the cost of your home.