Frequently Asked Questions

Frequently Asked Questions

By Frank Pellegrini

Q:

Q: What are the two types of title insurance?

The two types of title insurance are lenders title insurance, also called a loan policy, and owner’s title insurance.

Most lenders require a loan policy when they issue you a loan. The loan policy is usually based on the dollar amount of your loan. It protects the lender’s interests in the property should a problem arise with the title. The policy amount decreases each year and eventually disappears as the loan is paid off.

Owner’s title insurance is usually issued in the amount of the real estate purchase. It is purchased for a one-time fee at closing and lasts as long as you or your heirs have an interest in the property. This may even be after the insured has sold the property. Only owner’s title insurance fully protects the buyer should a problem arise with the title that was not uncovered during the title search. Owner’s title insurance also pays for any legal fees involved in defending a claim to your title.

Q:

Q: Does title insurance really pay claims?

Yes. The title insurance industry paid out nearly $700 million in claims in 2004. Some of those claims result from industry errors, to be sure. But by far the largest portion of claims payouts results from unclear legal statuses such as conflicting wills, or deliberate fraud and forgery perpetrated on homeowners and businesses.

Q:

Q: Why do I need title insurance if I’m refinancing?

When you refinance you are obtaining a new loan, even if you stay with your original lender. Your lender will require lender’s title insurance to protect its investment in the property. You will not need to purchase a new owner’s title policy; the one you bought at closing is good for as long as you and your heirs have an interest in the property.

Even if you recently purchased or refinanced your home, there are some problems that could arise with the title. For instance, you might have incurred a mechanics lien from a contractor who claims he/she has not been paid. Or you might have a judgment placed on your house due to unpaid taxes, homeowner dues, or child support for instance. The lender needs reassurance that the title to the property it is financing is clear.

If it has been no more than 10 years since you bought your house or refinanced, ask for a reissue or discount rate. They are not available in every state, and you might have to meet some criteria to be eligible, so be sure to ask.

Q:

Q: Why do I need title insurance if I’m buying a newly built home?

You may think you are the first owner when constructing a home on a purchased lot. However, there were most likely many prior owners of the unimproved land. A title search will uncover any existing liens and a survey will determine the boundaries of the property being purchased.

In addition, builders routinely fail to pay subcontractors and suppliers. This could result in the subcontractor or supplier placing a lien on your property.

Again, lenders want to be sure the property has clear title, and they are insuring the correct property. Purchasing owner’s title insurance will protect you against these potential problems and pay for any legal fees involved in defending a claim.