Wednesday, Apr. 13, 2005

 

What you should know about title insurance

Here are some facts and fallacies about title insurance that will surprise many homebuyers.

Myth: Title-related charges make up a substantial portion of closing costs and are a major obstacle for buyers of moderately priced homes.

Reality: Title insurance and other title-related charges make up a modest percentage of total closing costs when compared to lender and realty agent fees.

Myth: Lender's title insurance protects the homebuyer.

Reality: The interests of the lender and owner are often substantially different. The lender's policy is written in the amount of the loan. If there were a total failure of title, the lender would be covered for the full amount of its investment, while the buyer would have no coverage at all.

Owner's title insurance will protect the purchaser if a claim is made against the title. Owner's title insurance will also pay any legal fees in defending the claim.

Myth: High on the list of title insurance myths is one that says title insurance losses are low.

Reality: The reality is quite different. In 2002 and 2003, title insurers paid $582 million and $661 million in claims, respectively.

Surprising to many homebuyers is the need to purchase title insurance even when buying land only. A title search can miss things such as undisclosed heirs and wills not probated. Owner's title insurance can protect you when this happens. It can also reveal other potential problems.

For example, a title search may fail to identify that the two acres of land you want to purchase were once part of a five-acre tract. A prior deed to the five acres restricted the use of the property to "a single-family dwelling." The other three acres from the original tract already contained a single-family dwelling, which creates doubt about the ability to build a home on the two acres.

Owner's title insurance can provide protection and assistance in obtaining releases from the appropriate parties to remove the problem and allow your house to be built.

Since its inception, owner's title insurance has offered protection that is significantly different from other lines of insurance. Typically, other types assume a particular risk and provide financial indemnity in the event the risk occurs. Title insurance, on the other hand, emphasizes loss prevention by eliminating risks caused by title problems arising from past events.

To learn more about the importance of title insurance, visit the American Land Title Association Web site at www.alta.org.