What is Title Insurance and Why am I paying for it??

• WHAT IS TITLE INSURANCE?

A little background: there is a Lenders' title insurance and an Owners' title insurance. Lender's title insurance is required by lenders to assure them that should a title issue pop up, they are protected. IE, if you default on the mortgage, they get the property with no problems.

With every real estate transaction that ainvolves a lender, a title search is performed to assure you the seller and primarily the lender (who ordered the title search) that the property really is going to flow into your name with the lender as lien holder at the closing. The actual flow requires that certain papers are filed with the courthouse, but the lender will see to it that those papers are filed!

The title search investigates the records for the property that is changing hands. And if there was fraud or forgery in the papers filed on the property, then the title search may not reveal everything one would care to know about the history of that property.

When one buys title insurance, the title insurance company bears the cost of determining the validity of any claim against the new title and defending it.

If there is a real title defect, the title insurance company pays the claim (whatever the cost is to cure the issue) so that you, the new owner, retain ownership without loss, or, in the worst case, pays you for any losses incurred.

• WHY DO I NEED TITLE INSURANCE?

Well, you HAVE to have Lenders' Title Insurance, if you get a loan, otherwise, you won't get the money. The lender isn't going to hand over hundreds of thousands of dollars to you or anyone else without considerable protection - they've checked your credit to make sure you pay your bills, and checked your employment to make sure you're making money to pay your bills; they've appraised the property to make sure ithas value, and if your loan is over 80% ltv, they've insisted that you buy mortgage insurance. This is just one more thing that protects their money against almost anything. Well, everything they can think of and use to protect themselves.

• WHAT DOES A TITLE COMPANY DO?

In some states a title company acts as the loan closing facility. This is done by attorneys in some states - Georgia for instance.

When they are closing a loan they are to see ti the interests of all parties, buyers, sellers, lenders,and real estate agents; and coordinate the transfer of money and property at the time of closing.

Before you actually get to the closing, the title company will research the ownership history of the property (the title examination) to determine that the title is free of any liens or claims. At the closing table, the title company settles all funds, generates the closing paperwork to transfer ownership of the property, and, of course issues title insurance.

• SO WHY DO I NEED TITLE INSURANCE?

Owners title insurance is not required by the lender - They are looking out for their intersts. Owners title isnurance protects the purchaser from any title claims.

I'm of the opinion that if you have a 100% loan, then the lender's title insurance has to cover the title completely. But, if you have made a substantial downpayment on the property, then the lender's coverage may be insufficient and in that case you should seriously consider owners title insurance.

If you're buying foreclosures, or taking a deed under power, I'd highly recommend Owner's title insurance.

• ISN'T THE TITLE EXAM GOOD ENOUGH?

I was once told, by a title company, that a title examination is only as good as the land records. If there is a filing error or fraud, or if an estate is mishandled you could run into very real problems. Like, you might not really own the property you're living in.

Title insurance protects you when the title exam did not reveal problems.

• DO TITLE COMPANIES CHARGE DIFFERENT RATES FOR TITLE INSURANCES?

The maximum title insurance rates are set by state insurance commissions and are based on the purchase price of your property (owner's policy) and the loan amount (lender's policy). And those rates do differ.