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What is title insurance?
Title insurance: What’s so special about it & why do I need it?
First of all, what is a title? In connection with real estate, title means legal right to own, possess, use, control, enjoy and dispose of real property or an inheritable right or interest therein. Legal ownership (title) of a property isn’t always crystal clear and can be more difficult to confirm than most people think.
Old, lost or misplaced records of liens, easements, subdivisions and other questions of ownership often present themselves after a sale is completed, creating legal issues that are stressful, laborious and costly. Some statistics state that as many as a third of residential property transactions have title issues that call into question who actually owns the property.
Title insurance is underwritten by a title insurance company, but the policy is purchased from title agents such as the professionals at Tohickon Settlement Services. Each policy is subject to specific terms, conditions and exclusions based on the exact property whose title the policy guarantees.
If you obtain a mortgage to purchase your real estate, or if you are refinancing an existing mortgage, your lender will probably insist on a title insurance policy that names the lender as the beneficiary and covers any loss to the lender’s investment. That is, if a legal title discrepancy arises, the lender is covered for the current value of the outstanding mortgage with that policy expiring once the note is satisfied. Such a policy does not cover any loss the property owner may experience. For that kind of protection, you must also purchase an owner’s title insurance policy.
Owner’s title insurance: protect your investment against risks
A home is probably the single largest investment you’ll make in your life. You insure everything else that’s valuable to you—your life, car, personal property, health, big-ticket items like art and jewelry—so why not your real estate investment? For a one-time fee, owner’s title insurance protects your property rights for as long as you own your property. If a claim arises, the title insurance company is obligated to pay for all legal costs, deal with the hassle of the claim and pay you, as the owner of the policy, for any financial loss resulting from the claim.
Title insurance premiums are set by each state, with every title agency obligated to charge the established rate.
In Pennsylvania and New Jersey, when the property being purchased is financed, title insurance policies are issued simultaneously to the owner and lender. In this case, the cost for these policies is calculated on the sale price— typically higher than the amount financed.
In all states, you do have the option to forgo the owner policy and purchase only the lender’s policy. In this case, the premium cost is calculated on the financed amount—typically a lower figure. If you choose that option, however, you leave yourself at risk.
But isn’t the title examined and aren’t liens or encumbrances found in the title search before my closing? Yes…and no. Even if your house is new or only a few decades old, the land it sits on here in Pennsylvania or New Jersey has had many owners and therefore many opportunities for lost or hidden issues and claims that even the most thorough title search can’t bring to light.
Don’t think it will happen to you? Think again. Here are just some of the many situations that you’ll be protected from if you have owner’s title insurance.
Unforeseeable title claims, such as these:
- Claims: unexpected parties claiming rights
While you may be the rightful owner, people may come forward claiming rights to your property because of things like unrecorded agreements, bankruptcy, a divorce settlement or unknown easements.
- Forgery and fraud: deception to achieve unfair gain
For example, someone steals your identity and either sells your house without your knowledge or consent, or takes out a second mortgage on the property and walks away with the money.
- Clerical error: inconsistent paperwork and historical records
For example, an unforeseeable discrepancy in the property or fence line causes confusion in ownership rights.
Unexpected title issues, such as these:
- Outstanding mortgages and judgments, or liens against the property because the seller hasn’t paid for things like federal or property taxes, utilities or homeowners association fees.
- Pending legal action against the property or pending building-use restrictions
- An unknown heir or divorced partner of a previous owner who comes forward with ownership rights to a property
Tohickon Settlement Services
5230 York Road
PO Box 125
Holicong, PA 18928
And now in Center City
One Liberty Place
1650 Market Street, Suite 3600
Philadelphia, PA 19103
And in New Jersey
372 Route 18
East Brunswick, NJ 08816