What is Title Insurance?
Title Insurance is an insurance policy that protects you and your lender against defects in Title.
Why is it needed?
It is not uncommon for individuals and entities other than the record owner of the property to have a right, interest or claim to that property. For instance, most people borrow money in the form of a mortgage in order to purchase their home. That mortgage gives the lender a right to the property. If the borrower defaults on their loan, the lender many exercise their right to the property, foreclose, and attempt to regain some of their lost money by selling that property.
What would you do if that unpaid mortgage had been taken out by the previous owners? Title Insurance protects against claims such as that.
Other examples of risks against which standard title insurance may protect you include unpaid judgments, taxes and municipal services, undisclosed or missing heirs, use restrictions, forged documents, signatures of minors or mentally incompetent persons, fraud, clerical errors, wills not probated and more.
How does title insurance protect me and my investment?
The insurer is obliged to defend you against the claims of others, regardless of the validity of the claim. Your insurance pays all court costs and related fees, in accordance with the terms of the policy, in addition to any actual loss up to the policy amount.
How much could I lose if a claim is filed against my property?
It all depends upon the claim. At worst you could lose the entire property and still be liable for the balance of your mortgage. Even the smallest claims cost time and money.
Are there different kinds of title insurance policies and coverages?
There are two kinds of policies:
Lender’s Policy: The lender’s policy covers only the amount of the loan, which is usually less than the full property value. This policy would only be called into action if a defect in title became evident which effects the lenders ability to collect on their mortgage and/or foreclose to recover its principal and interest. This policy provides for loss and legal expenses of the insured, the lender, only. This protection remains in effect for as long as the mortgage remains unsatisfied.
Owner’s Policy: The owner’s policy provides protection for the owners of the property as well as their heirs for as long as they hold title to the property. If a valid claim is filed, in addition to financial loss up to the face amount of the policy, your owner’s title policy covers the full cost of any legal defense of the title. One type of coverage even increase in value over time so if your property value increase you still have adequate coverage.
There are also two kinds of coverage:
(Only in Pennsylvania)
Basic Coverage provides for defects in title existing at the time title is issued. Whereas the newer Enhanced Coverage provides additional insurance for certain existing problems, as well as some future events.
Some of the problems covered by the enhanced policy are: Building permit violations of previous owners. Neighbors building encroaching structures onto your land after you purchase it. Post-policy forgery or impersonation leaving you with no record title. Lack of actual physical access for both vehicles and pedestrians to and from your home. Subdivision law violations of the previous owner.
An additional benefit of the enhanced coverage relates to estate planning. With basic coverage, you would have to purchase a new owners title policy if you transferred your property to a trust when planning your estate. With the enhanced coverage, your existing title insurance would carry over to insure the trust.
How is the cost of the insurance policy determined?
Title Insurance Rates are set by state law. Rates are based upon your sale price or loan amount, whichever is higher.
Title Insurance is generally calculated at the Basic Rate. However, discounted rates are also available if certain conditions are met. These discounted rates are called Reissue Rate and Substitution Rate. CLT’s Lowest Premium Guarantee ensures that you will automatically receive these discounts if your transaction meets the state requirements.
Pennsylvania, Enhanced coverage policies are state regulated just like the basic coverage policies. The enhanced coverage Basic Rate is 10% more than that of the basic coverage. The discount tiers apply to the enhanced coverage as well.
When comparing price quotes, keep in mind that you will have other closing costs besides the insurance premium.
Do I have to make monthly payments?
No. Title Insurance is a one time fee which will provide you with coverage for as long as you own the property and as long as a mortgage is unsatisfied.
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