The Titling Process Explained [Real Estate 2020]

“Title insurance.” Like “escrow,” “earnest money” and “amortization,” title insurance is one of those home buying terms you feel you should understand but probably don’t. But have no fear: we’re here to break down and explain this vital part of the homebuying process, and how it can help you fend off serious financial troubles down the road.

Understanding the basics

So, what exactly is title insurance? It’s a special kind of insurance that protects you in case there is defect or problem with a property’s title. It helps protect an owner and/or a lender against any legal action or claims against the property that can arise from disputes over the title.

How does it work?

There are two main types of title insurance policies: Owner’s title insurance and Lender’s title insurance. Each provide similar protection and coverage but are intended for different parties to the transaction (as their names imply).

• An Owner’s title insurance policy assures the new owner that the title to the property is correctly vested with them and that title is free from all defects, liens and encumbrances except those specifically excepted out in the policy’s coverage. 
• A Lender’s title insurance policy, also called a loan policy, provides insurance coverage only to the lender in the transaction involving a mortgage, deed of trust or other security instrument. 

Why is it important?

So, as an example, if a property is purchased without title insurance protection and is affected by any problems, such as unreleased mortgages, fraudulent acts, or mistakes in public record, then the new property owner (i.e. YOU) would be responsible for dealing with the problem. Uninsured property owners would be tasked with having to potentially fight the case in court, hire an attorney, or even face the prospect of losing their home.

What about if I’m only refinancing, not purchasing? 

In a refinance transaction, customarily only Lender’s title insurance is purchased, since the borrower is not covered by insurance issued in this situation. An Owner’s policy can be purchased in conjunction with a loan policy when refinancing, but it’s generally not common. 

So, there you have it! Title insurance is an important part of the homebuying process, and a vital way to protect your financial future against unforeseen problems. 

While all this may get complicated we can help you make sure you have the knowledge for the market to be in your corner.

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