What is title insurance and why do I need it?
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By Shami Malone
TRUSSVILLE — When we think of insurance, most of us would most likely think of casualty insurance, such as health insurance, homeowner’s insurance, auto insurance and the like. These types of policies insure against future losses such as illness, property damage and auto damage. If you have ever purchased or sold a home, or even refinanced a mortgage, you have probably heard of title insurance. However, most people do not know what title insurance actually is, except that it is associated with real estate closings.
Unlike many other insurance policies, title insurance is a non-casualty insurance policy. It ensures against future loss based on prior risk. Rather than being based on what might happen in the future, title insurance professionals search the history of the title to the property to determine any risks caused by prior title problems. During the title search, the title professional will determine any mortgages, liens or judgments that must be paid or satisfied before the property can
be sold. The search will also show who the current owner of the property is, as well as past owners. After these documents are examined, the title professional will prepare the title commitment. The title commitment is the “instructions” to the closing agent on the items that must be resolved in order for a seller to transfer clear title of the property to a new buyer.
While this does not sound complex, there are always risks, even if the title examiner has carefully examined all of the documents that are public record. For example, what if a prior deed in the chain of title was forged or signed by a person who was not the true owner of the property? Or what if a prior owner had an unpaid mortgage that was filed incorrectly so that it did not appear in the title search? Purchasing title insurance at closing would indemnify a buyer from any loss or damage suffered as a result of such defect, lien or encumbrance. Imagine buying a home and deciding not to purchase title insurance, only to discover that the person you bought the home from was not the true owner. Unfortunately,
not only would you not be the proud owner of a new home, but you would be left with the expense incurred in attempting to recover the money you paid for the property.
Unlike most other types of insurance, the title insurance premium is paid only once. The coverage is long-term and can protect the insured and the insured’s heirs even after the property is sold. Considering that for most people, the purchase of a home is the largest financial investment they will ever make, it only makes sense to purchase title insurance so that the investment is protected.
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