Most kinds of insurance are self-explanatory. Flood insurance protects against losses from floods, collision insurance guards against the cost of vehicle damage from a collision, but what does it mean to insure your title to real estate?
Real estate has always been considered a valuable possession. It is a fundamental form of wealth, and as such, numerous special laws have been enacted to protect ownership of land and the buildings which stand upon it. Buyers should realize that whenever someone buys property, the seller of that property has extremely strong rights, as do his or her family and heirs. Also, there may be others – in addition to the selling owner – who have “rights” on the property. These other parties may be governmental bodies, utility companies, contractors who performed work on the property, or other individuals who have proper unpaid claims against the property.
Anyone who has such a claim is, in a sense, a part-owner. The property may be sold without the parties which have claims knowing about the sale, or the unsuspecting buyer knowing about the claims. Such claims may remain attached to the real estate after it is purchased.
Title insurance for property owners, called an Owner’s Policy, is usually issued in the amount of the real estate purchase. It is purchased for a one-time fee at closing and is valid for as long as the owner or his or her heirs have an interest in the property. Only an Owner’s Policy fully protects the buyer should a covered title problem arise with the title that was not found during the title search.
Title insurance for mortgage lenders is called a Loan Policy. Most lenders require a Loan Policy when they issue a mortgage loan. The Loan Policy is usually based on the dollar amount of the loan and it protects the lender’s interests in the property should a problem with the title arise. It does not protect the buyer. The policy amount decreases each year and eventually disappears as the loan is paid off.