What is Title Insurance?
Title insurance is a special kind of title warranty that protects real estate title owners and lenders from losses caused by defects in the title.
Although title insurance is not required, it can be purchased voluntarily to protect against title defects such as fraud, lack of authority, or liens that may appear after closing, and even may add value to property transactions because it not only makes title examination easier for the title insurer but also helps ensure the transferability and marketability of title while protecting real estate buyers and their lending institutions from any hidden title problems.
Title insurance also minimizes:
- Financial risk and potential liability associated with owning real estate by ensuring legal ownership free and clear of all encumbrances or other claims on the title
- Provides peace of mind for title owners, helps speed the title search process, provides title defense when necessary, and protects title owners in court.
- Generally valid during the entire time a person or legal entity owns that title to real estate. A title insurer will defend the title up to the limits stated in the policy before any payment is made.
It’s essential to keep in mind that after the title insurer has made a payment on behalf of the title owner under the terms of its policy, no further claim may be brought against the title insurer under that policy.
Who are the leading real estate title insurers?
The leading title insurer in the United States is First American Title Insurance Company, which writes title insurance coverage for almost every state. Another title insurer, Stewart Title Guaranty Company, provides title insurance protection.
How much is title insurance?
All states have different requirements about how much a title insurer can charge for its policy premiums, resulting in wide variations in title insurance costs according to the state and its real estate market conditions. Generally, title insurance costs from 2% to 4% of the total real estate purchase price. In some states, title insurers can add an endorsement—or rider—to their title insurance policy. This kind of title insurance endorsement will add a premium for special protection if a lender requires it. For example, in New York State, this type of title insurance endorsement can add a premium of up to 1% of the title insured value. To make the title insurance premium more affordable, title insurers often allow title owners to reduce their title insurance premiums by providing proof of newer title protection endorsements on existing policies.
- Real estate buyers and sellers should carefully consider title insurance when entering into real estate purchases, be sure to research title insurance and title companies, primarily when the title does not originate from a normal state.
- Real estate buyers can save money on title insurance premiums by having a title insurer pre-clear title before purchase or during escrow. It is essential for real estate sellers to understand that title insurance protects their interests.
TIP: Read your title insurance policy to understand what is covered, what exclusions exist, and the other terms and conditions of a specific policy.
Did you know that title insurance protects multiple parties involved in real estate transactions? This protection includes buyers who purchase properties free and clear of all encumbrances or other claims on titles, sellers whose properties are being sold, and lenders who require title insurance as a condition of their loan.
Another critical aspect of title insurance is that policies issued by title insurers provide coverage for the life of the policy, which means that past title issues will be covered as long as there is no lapse in title insurance coverage nor termination of the title insurance policy.
Title insurance policies offered by title insurers generally cover title searches, title examination, title defects based on public records, title disputes between owners of neighboring properties, title problems caused by the issuance of court decisions against a person’s property ownership rights, attempts to have a false claim ruling issued to defraud an insurer out of money in connection with title claims and damages resulting from errors in writing instruments that affect title to real estate.
The title insurer also provides title defense and insurance coverage in the event of a title claim, title guarantee benefits to titleholders upon policy termination or expiration, which includes owner replacement title guarantees that ensure the title owner will receive a new title free and clear of all encumbrances or other claims on title without having to pay additional premiums.
In addition, there are other situations where an existing title insurer may issue a title insurance binder which is a temporary policy issued for real estate transactions requiring expedited closing such as refinance transactions, construction loans, commercial property sales, and purchases where buyers want protection against potential future defects before final commitment decisions have been made. The issuance of a binder can help speed up the process since lenders can proceed with the loan commitment with title insurance protection for the title owner against title defects.
In most cases, title insurance binder policies will provide enough time to allow a title insurer to underwrite the policy and issue a final title insurance policy which makes it easier to close real estate transactions in an expedited manner.
A title insurer should be contacted early on in the closing process since title insurers need several days or weeks to research recorded documents affecting the title before offering protection either by issuing a policy or providing binder coverage.