The answer is simple: the purchase of a home is most likely one of the most expensive and important purchases you will ever make. You and your mortgage lender want to make sure the property is indeed yours: that no individual or government entity has any right, lien, claim, or encumbrance on your property.
The role of a title insurance company is to make sure your rights and interests to the property are clear and that transfer of title takes place efficiently and correctly. This ensures that your rights as a homebuyer are fully protected.
Title insurance companies provide services to buyers, sellers, real estate developers, builders, mortgage lenders and others who have an interest in real estate transfer.
Title companies typically issue two types of title policies:
Both types of policies are issued at the time of closing for a one-time premium, if the loan is a purchase. If you are refinancing your home, you probably already have an owner's policy that was issued when you purchased the property, so we'll only require that a lender's policy be issued.
Before issuing a policy, the title company performs an in-depth search of the public records to determine if anyone other than you has an interest in the property. The search may be performed by title company personnel using either public records or, more likely, the information contained in the company's own title plant.
After a thorough examination of the records, any title problems are usually found and can be cleared up prior to your purchase of the property. If any claim covered under your policy is ever filed against your property, the title company will pay the legal fees involved in the defense of your rights once the company issues a title policy. The title company is also responsible for covering losses arising from a valid claim. This protection remains in effect as long as you or your heirs own the property.
The fact that title companies try to eliminate risks before they develop makes title insurance significantly different from other types of insurance. Most forms of insurance assume risks by providing financial protection through a pooling of risks for losses arising from an unforeseen future event. On the other hand, the purpose of title insurance is to eliminate risks and prevent losses caused by defects in title that may have happened in the past.
This risk elimination has benefits to both the homebuyer and the title company. It minimizes the chances that adverse claims might be raised, thereby reducing the number of claims that have to be defended or satisfied. This keeps costs down for the title company and the premiums low for the homebuyer.
