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What is Title Insurance?…And why is my Bank Making me pay for it?

Whether you’re a first-time homebuyer, or a seasoned real estate veteran, it is more-likely than not that you have encountered the term “Title Insurance.” In our experience, most homebuyers are unaware of exactly what title insurance is, and why they are often required by their lenders to purchase it.

It is important to note that there are two types of Title Insurance; “Mortgage” and “Owner’s.” Anyone considering making a real-property purchase should be familiar with both of these types of policies, and understand that although they protect the same piece of property, the parties that they protect are completely different.

A policy of “Mortgage” Title Insurance is required to be purchased for the lender whenever a buyer is getting a mortgage loan to buy a home. The premium for the insurance is paid for by the buyer as one of the closing costs that a buyer/borrower must pay at closing. Mortgage Title Insurance is insurance that will cover the Lender in the event that a buyer/borrower ever go into default and the Lender has to foreclose on the home. If there is a “title problem” that prevents the lender from foreclosing and getting title to the home back, the lender can file a claim for payment with the insurance company. What buyers need to be aware of, but most often are not, is that this “Mortgage” Title Insurance only covers the Lender in the event of a problem, NOT the homeowner.

Never fear, an “Owner’s” Title Insurance policy is designed for homeowners to purchase in order to protect their investment and cover their title ownership. An Owner’s Policy is usually issued in the amount of the real estate purchase. It is purchased for a one-time fee at closing and lasts for as long as the buyer has an interest in the property. Only an Owner’s Policy protects the buyer should a covered title problem arise. Possible hidden title problems can include: errors or omissions in deeds; mistakes in examining records; forgery; and even undisclosed heirs. Although these occurrences are deemed to be rare, they arise more often than one would think; therefore, it is important to be protected. An Owner’s Policy provides assurance that your title insurance company will stand behind you in the event that a title problem arises after you buy your home.

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