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Title Insurance - Is it a Must?

Definition:  In the world of real estate, Title means a home owner has the right to maintain or sell the home because it is in his/her possession. The owner also has the right to enjoy the property.   When selling or purchasing a home there are several ways you will experience Title: 

As A Report...
The history of all the home owners of a specific parcel of land.  It's important to have each home owner properly recorded on the report so there is no confusion on who owns what, or who transferred to whom.  Mistakes or problems can lead to a lot of confusion and delay the transfer of property from one person to another.
 
A Company:
A neutural party hired by the buyer and seller to reasearch the title report and make aware any mistakes/problems. Once a full investigation is complete, the Company gives seller and buyer a copy."
The Title Company is also responsible for making sure every party in the transaction plays by the rules.  They are similar to a referee in a sporting events.  They handle the transfer of money and keep records of all documents.  Then, they make sure the transfer is recorded at the County Assessor's office - making known to the state, that the title has been transferred.
 
An Insurance Policy:
An insurance policy written by the Title Company, and applied against the property. This can be considered Company's "opinion" concerning ownership and marketability of possession on the property.  The buyer is purchasing the title insurance.  This means the Company is backing their research and willing to correct mistakes in the future if found the home shouldn't of transferred in the first place.  
The Insurance policy does not cover the following:

  • Defects in title known to the insured
  • Liens not on public records
  • Easements
  • Interests of parties in possession
  • Survey matters

Reasons for the insurance are two fold.  The mortgage company wants to ensure that they will be able to put a mortgage on the property with no issues (mortgage companies are also recorded during the purchase). The buyer wants to enjoy the property they just purchased with no problems. The owner wants to make sure that their real estate is marketable and will be able to sell, lease, or mortgage the property with no worries. The title insurance policy protects the lender if there is a title issue. One must purchase an owner's policy to protect oneself. If not, it would be very costly if a title issue would arise down the road. Many times you can ask for a lower rate if you purchase from the seller's previous title company. I always believe in asking for a discount.
 
Conclusion
First, I would advise to ask the escrow title officer to explain the title insurance policy in detail in what it covers and does not cover. The escrow title officer is a great source of information since they perform this type of service on a daily basis. Another person to ask would be a real estate lawyer. I would highly advise to hire a real estate lawyer for an hour or two to review the title insurance documentation for one's protection.


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