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Why do you need title insurance?

To protect possibly the most important investment you'll ever make- real estate. 

A lender goes to great lengths to minimize the risks of lending money for the purchase of real estate. First, credit is checked as an indication of the borrower's ability to repay the loan. Then, the lender seeks assurance that the quality of the title to the property to be acquired and which will be pledged as security for the loan is satisfactory. The lender does this by obtaining a loan policy of title insurance.

Therefore, purchasers of real estate, and not just lenders, can protect themselves in the same way by purchasing Fee or Owner's title insurance. 

Does the loan policy protect the borrower?

No. The loan policy protects the lender against loss due to unknown title defects. It also protects the lender's interest from certain matters which may exist, but may not be known at the time of the sale.

A real estate purchaser needs an owner's policy, which can be issued at the same time as the loan policy, usually for a nominal one-time fee. 

What is the danger of loss? 

If the lender has title insurance protection and the owner does not, what possible danger of loss exists?

As an example, assume real estate was purchased for $2,000,000. A down payment of $500,000 is made, and a lender holds a $1,500 mortgage lien, or beneficial interest. The lender acquires title insurance protecting the lender's interest up to $1,500,000, but the purchaser's down payment of $500,000 is not covered. 

What if some matter arises affecting the past ownership of the property? The title insurance company would defend and protect the interest of the lender. The purchaser, however, would have to assume the financial burden of his or her own legal defense. If the defense is not successful, the result could be a total loss of title. 

The title insurance company pays the lender's loss and is entitled to take an assignment of the borrower's debt. The purchaser loses the down payment, other equity in the property that may have accumulated, the property, and the balance on the note is still due.

How can there be a title defect if the title has been searched and a loan policy issued?

Title insurance is issued after a careful examination of copies of the public records. But even the most thorough search cannot absolutely assure that no title hazards are present, despite the knowledge and experience of professional title examiners. In addition to matters shown by public record, other title problems may exist that cannot be disclosed in a search. 

What does title insurance protect against?

Here are just a few of the most common hidden risks that cause loss of title or create an encumbrance on title:

  • False impersonation of the true owner of the property

  • Forged deeds, releases or wills 

  • Undisclosed or missing heirs 

  • Instruments executed under invalid or expired power of attorney

  • Mistakes in recording legal documents

  • Misinterpretations of wills 

  • Deeds by persons of unsound mind

  • Deeds by minors 

  • Deeds by persons supposedly single, but in fact married

  • Liens for unpaid estate, inheritance, income or gift taxes 

  • Fraud

What protection does title insurance provide against defects and hidden risks?

Title insurance will either clear up title problems or pay the insured's losses for defending against any lawsuit attacking the title as insured. For a one-time premium, an owner's title insurance policy remains in effect as long as the insured, or insured's heirs, retain an interest in the property, or have any obligations under a warranty in any conveyance of it. Owner's title insurance, issued simultaneously with a loan policy, is the best title insurance value a property owner can get.

Why is title insurance important when refinancing?

Why do you need to buy title insurance again even though you purchased a policy when you first bought your property and there is no change in ownership?

It's because a separate policy is needed by the lender insuring the validity of your mortgage when it is made. 

For as long as you own the property your mortgage is valid, but it doesn't ensure the new mortgage created when you refinance  and it doesn't provide protection against events that may have transpired between the time you purchased and when it is refinanced. 

For example, you may have taken out a second mortgage on the property that could threaten the priority of the new lender's mortgage. Or, there could be legal judgments against you or a mechanic's lien against the property by a supplier who wasn't paid for home improvements. 

Lenders also insist on a new title policy because many mortgages are packaged as securities and sold to investors in the secondary mortgage market. Title insurance is the only practical way to provide the assurance investors demand and to ensure that the mortgages backing these securities are valid and enforceable.

For your refinance transaction with On-Line Abstract, you may qualify for a special title insurance rate based on the loan amount. There may be additional charges for recording fees, closing fees and endorsements. Your lender can provide you with an estimate of these costs. 

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