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7 Frequently Asked Questions About Title Insurance
7 Frequently asked Questions about Title Insurance
APRIL 30, 2015 BYTOM JOVANOVSKI
What is title insurance?
Title insurance is a contractual obligation between you (and/or your lender) and the title insurance company, wherein the title insurer provides protection (effective as of the date the title insurer issues the policy) against future losses that might result from a variety of possible title defects or encumbrances.
An insurance policy-protecting against loss should the condition of title to land be other than as insured.
A principal purpose of title insurance is to eliminate the title risk associated with a real estate transaction. This means that the title company will review the transaction to seek to identify and eliminate any potential title risk. The objective is to identify and eliminate title risks which may be present and to provide the insured with a policy of title insurance which provides protection in the future there are no problems which exist on or before the effective date of the policy of title insurance other than those identified in the policy. Unlike most insurance, title insurance only charges a single premium at the date the policy is issued.
Why do I need Title Insurance:
When you buy a home, or any property for that matter, you expect to enjoy certain benefits from ownership. For example, you expect to be able to occupy and use the property as you wish, to be free from debts or obligations not created or agreed to by you, and to be able to freely sell or pledge your property as security for a loan. Title insurance is designed to cover these rights you bargain for.
Benefits of Title Insurance:
The purchaser of real estate needs protection against serious financial loss due to a defect in the title to the property purchased. For a single, on-time premium, which is a modest amount in relationship to the value of the property, a buyer can receive the protection of a title insurance policy. A title insurance policy will cover both claims arising out of title problems that could have been discovered in the public records, and those so-called “non-record” defects that could not be discovered in the record, even with the most complete search.
To the Seller:
An owner of real property whose interest is insured by an owner’s title insurance policy has the assurance that the title will be marketable when selling the property. The title insurance policy protects the seller from financial damage if the seller’s title is rejected by a prospective purchaser. Also, when the seller conveys with “warranties,” the seller is still protected if the buyer sues because of a breach of those warranties.
What does Title Insurance Cover?
-Protection from financial loss (up to the face amount of the policy) due to covered claims against your title
-Payment of legal costs to defend against covered claims;
-Payment of successful claims against your title (up to the face value amount of the policy)
What are my chances of ever using my title policy?
In essence, by acquiring your policy, you derive the important knowledge that recorded matters have been searched and examined so that title insurance covering your property can be issued. Because we are risk eliminators, the probability of exercising your right to make a claim is very low. However, claims against your property may not be valid, making the continuous protection of the policy all the more important. When a title company provides a legal defense against claims covered by your title insurance policy, the savings to you for that legal defense alone will greatly exceed the one-time premium.
What if I am buying property from someone I know?
You may not know the owner as well as you think you do. People undergo changes in their personal lives that may affect title to their property. People get divorced, change their wills, engage in transactions that limit the use of the property and have liens and judgments placed against them personally for various reasons.
There may also be matters affecting the property that are not obvious or known, even by the existing owner, which a title search and examination seeks to uncover as part of the process leading up to the issuance of the title insurance policy.
Just as you wouldn’t make an investment based on a phone call, you shouldn’t buy real property without assurances as to your title. Title insurance provides these assurances.
The process of risk identification and elimination performed by the title companies, prior to the issuance of a title policy, benefits all parties in the property transaction. It minimizes the chances that adverse claims might be raised, and by doing so reduces the number of claims that need to be defended or satisfied.
Is title insurance as important as homeowners insurance?
Generally speaking, homeowner’s insurance protects against theft or damage. If a fire destroys your home, you will be able to rebuild or to buy a new house. However, if your property title has defects, you could lose any rights over the house and the property on which it has been built.
This is why it is important to have a great Title company as part of your real estate team. First Arizona Title agency takes pride in safeguarding every transaction from complicated commercial closings to simple residential cash translations. First Arizona Title’s reputation for experienced staff, combined with local market knowledge lease to security in your transaction.