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Why do I need title insurance?

Homeowners often ask the question, “Why do I need title insurance?”  Your home is most likely the largest purchase you’ll ever make and title insurance plays a key role in protecting your investment.

A detailed title search is conducted after you sign the sales contract to purchase your home.  The title search involves examining the land records pertaining to your property over the last 60 years.  Though this is a detailed and thorough examination, there are many hidden issues that may not be uncovered by this process.  For example, forgeries on original documents, missing heirs, improper deeds and ex-spouses are very difficult to detect in the title search.  Title insurance protects you against these hidden risks. 

One of the most common types of title issues is unreleased liens on the property.  Even if the lien does not belong to you, since it is filed on the property, it becomes “attached” and must be cleared.  Approximately one-third of all properties have some type of title issue or defect.  An owner’s title insurance policy offers full protection against title defects as well as peace of mind to the homeowner.

It is important to understand the difference between the two types of title insurance policies, a lender’s policy and an owner’s policy.  Your lender will require you to purchase a lender’s policy to protect their investment in your property.  The lender’s policy is usually based on the amount of your loan, exists only over the life of the loan and protects the lender if a problem arises with the title.

Since the lender requires you to purchase a lender’s policy, you may be wondering why it’s strongly recommended to also purchase an owner’s policy.  While the lender’s policy covers their interest in your property, it does not protect the homeowner at all.  Consequently, if a title issue arises and you do not have an owner’s title insurance policy, you could be faced with large legal expenses to defend yourself against claims made on your property.  With an owner’s policy, you can rest assured that the title company will pay valid claims and cover your legal expenses should a title issue arise against your property.  

The owner’s policy is purchased for a one-time fee at closing and is based on the sales price.  Unlike the lender’s policy which is effective only for the life of the loan, an owner’s policy covers the homeowner for as long as they or their heirs own the property.

If you refinance your home, the lender will require you to purchase a new lender’s policy since you are obtaining a new loan.  The lender wants to be protected in case any claims have arisen since you originally purchased the property.  You do not have to purchase a new owner’s policy since the original policy is in effect as long as you still own the property.  You also may be entitled to a reissue rate, or discount, on the new lender’s policy if you have an owner’s policy that is less than ten years old.  RSI Title always applies the reissue rate discount to both refinances and purchases when available.

DISCLAIMER: This information is intended for educational purposes only and does not constitute legal advice. You should not rely or act upon any information contained in this article without seeking the advice of qualified legal counsel.

 

 

 

 

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