What is title insurance?
Title insurance protects buyers of real estate and issuers of mortgage loans from defects or problems with a land title in the transfer of property. If there is a title dispute resulting from a sale, the title insurance company may be responsible for paying specified legal damages, depending on the type of policy.
Title insurance protects homebuyers and lenders from sellers who do not have a clear title to real estate. Institutions issuing mortgage loans require their customers to buy title insurance.
Before a real estate sales contract has been executed, the title insurer looks for any problems with the title and helps resolve them. Only once a title researcher has thoroughly researched the history of a property, uncovered any defects, and the defects have been cleaned up will a lender issue a mortgage. Title insurance companies help prepare closing statements, coordinate with the lender, and participate in the formal closing.
Requirements for title insurance and title searches differ from state to state in the United States. Generally a title insurance policy is equal to the purchase price of the property, and it remains in effect until the new owner makes a substantial change to the property or refinances the mortgage.
Title insurance example
Unpaid property taxes or other liens remain with a property even when transferred to a new owner. The prior owner of a property may have underpaid local property taxes or failed to pay for construction work done on the property, both of which could result in liens. With title insurance, the insurer works with title professionals to resolve problems like these before a sale transaction closes.
If unpaid liens are missed during a title search, the new owner is responsible for clearing them. With title insurance, resolving issues missed in a title search is the responsibility of the title insurer.
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