Title insurance is important purpose in any real estate purchase. It protects buyers and lenders from financial losses that arise from defects in the title not caught before the transfer of property ownership, or disputes regarding the ownership of the property after the property is transferred to the buyer. In addition, title insurance covers potential damages from errors in the ownership records of the house or property. Title insurance policies can cover either a homeowner or a mortgage lender or both. Lenders will require title insurance as part of the mortgage process. However, it's often a good idea to buy title coverage for yourself as the homeowner as well. Title insurance can compensate you for damages or legal costs in a variety of situations. There is usually an additional cost for this coverage, however it is well worth it. If there is anything wrong with the title of the property, the title insurance company will pay for the cost of "perfecting" your title rights or provides compensation if you lose the property altogether. Title Insurance will generally protect the policy holder from Unintentional errors in recording or filing of documents, previously unreported liens and easements on the property, Forged transfers of ownership rights in the property, any other title defects that existed prior to the start of title insurance policy.
After a real estate contract is signed, it is necessary to establish the state of the seller's title for both the buyer, as well as to the satisfaction of the Mortgage Company or lender. Depending on the location of the property, a title search is generally, ordered by either the attorney or the title insurance company. In some states and outlying areas the attorney performs their own title search and reviews the status of the title and renders an opinion of the title in lieu of a title policy.
Title companies will perform their own Title Search to make sure that title to the property is clear before issuing Title Insurance.
Once the title search is complete, the real estate lawyer will review the title search and explain the title exceptions and that which is not insured. The lawyer will determine whether the legal description is correct and whether there are problems with prior owners or adjoining properties. The attorney can also explain the effect of easements and agreements or restrictions imposed on the property, and whether there are any legal restrictions which may impair your ability to sell the property.
It’s important to note that that the title search does not provide information about present or future zoning. It’s best to consult with an attorney regarding any zoning questions, such as whether the zoning prohibits two family dwellings, or whether future planned improvements may violate the zoning ordinances.
While the actual number of claims made to title insurance companies is relatively small, there are several scenarios where having title insurance can save a buyer thousands of dollars in legal fees and in the rare case, could end up compensating the buyer for the forfeiture of the whole property.