Story November 1, 2023

Title Insurance Explained

Title insurance is a type of insurance that protects lenders and buyers from financial loss due to defects in the title of a property. It ensures that the seller has the legal right to transfer ownership and that there are no liens, encumbrances, or other issues that could affect the title.

Title insurance is not a new concept. It has been around since the late 19th century, when it was developed in response to the increasing complexity and uncertainty of land transactions in the United States. Before title insurance, buyers had to rely on abstracts of title, which were summaries of the history and status of a property based on public records. However, abstracts of title were often incomplete, inaccurate, or fraudulent, and did not guarantee that the title was clear and marketable.

Title insurance changed the game by providing a comprehensive and reliable way of verifying and insuring the title of a property. It also enabled lenders to offer home loans to more people, as they could reduce the risk of losing their investment due to title defects. Title insurance made home ownership possible for millions of Americans who otherwise would not have been able to afford or qualify for a mortgage.

Today, title insurance is an essential part of the real estate industry. It protects both lenders and buyers from unforeseen problems that could arise after closing, such as fraud, forgery, errors, omissions, undisclosed heirs, or legal challenges. It also covers the legal fees and costs associated with defending or clearing the title in case of a claim.

Title insurance is different from other types of insurance in that it covers past events rather than future ones. It is also a one-time payment that is usually paid at closing as part of the closing costs. The amount of the premium depends on the value of the property and the level of coverage chosen. There are two main types of title insurance policies: lender’s policies and owner’s policies.

A lender’s policy is required by most mortgage lenders and protects them from losses due to title defects up to the amount of the loan. A lender’s policy only covers the lender’s interest in the property and does not protect the buyer.

An owner’s policy is optional but highly recommended for buyers who want to protect their own interest in the property. An owner’s policy covers the full value of the property and lasts as long as the buyer or their heirs own it. An owner’s policy also provides additional benefits, such as coverage for post-policy matters, inflation protection, and access to legal advice.

Title insurance is a smart and secure way of ensuring a smooth and successful real estate transaction. It gives peace of mind to both lenders and buyers that they are getting what they paid for and that their rights and interests are protected. Title insurance is not just a formality; it is a necessity.

Local Title companies serving Sandpoint.