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Title Insurance:  Facts Behind the Fees

The concept of insuring your ownership rights in a property originated in the United States during the late 1800s. At first, title insurance was created as a form of fraud protection. Unscrupulous individuals realized they could sell a property to two, three, or more purchasers, receive payment from each, and disappear before anyone realized what had happened, leaving the purchasers to fight amongst  each other for the ownership rights of the property. As such, title insurance was created to protect those very ownership rights. Although that type of fraud still exists today, title insurance has evolved to cover many more issues that can limit or otherwise encumber a property owner’s rights.

Unlike casualty insurance (auto, home, life, etc.) that requires regular payments to cover matters that may happen in the future, for a one-time payment title insurance covers matters that occurred in the past. A number of issues may cause a problem with a title or threaten an owner’s property rights; examples include fraud, mistakes of fact or law at the time of property transfer, unpaid taxes, marriage, divorce, foreclosure, death, unpaid bills, mortgages, easements, rights of way, governmental takings, local government or association liens, as well as numerous other causes. While title companies perform extensive research on each property’s history in order to mitigate any potential loss or ambiguity, issues may still arise that cannot be identified through the most exhaustive research of the public records. This is why title insurance is essential for any homeowner.

The modern title insurance policy, which is generally underwritten by a national multi-million dollar company, insures that, as of the “effective date” of the policy, the condition of title is stated – free and clear of any issue not specifically listed as an exception. Therefore, any loss the insured suffers as a result of matters within the coverage of the policy is either defended or compensated by the title insurance company. Simply put, for many Americans their home is their greatest asset. Title insurance provides the peace of mind that this asset is actually yours.

What is the difference between an Owner's Policy and a Lender's Policy?

A Lender's or Mortgage Title Insurance Policy will generally be required by your bank if you are borrowing money to purchase or refinance the debt on your property. That policy will only cover the lender's interest in the property; it does not provide any protection for the homeowner. Only an Owner's Title Insurance Policy will protect a homeowner from loss suffered due to matters such as those described above.

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