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How much do you know about title insurance?

Anyone considering the purchase of a residential property knows that they will need to protect their interests by having an inspection performed prior to signing on the dotted line. While this is absolutely true, it isn't the only thing prospective buyers will want to consider doing to help ensure the protection of their best interests.

Indeed, equally important is ensuring that they obtain good title to the property upon completion of the purchase, meaning one that's free from defects and/or outstanding liens by third parties.

In light of this reality, prospective homeowners must give serious consideration to -- or, in many cases, be required to -- purchase title insurance.

What is title insurance?   

Title insurance essentially protects the policyholder from any financial losses directly attributable to the title (defects, liens, etc.) and covers the legal expenses associated with defending the title in court.

It also indemnifies the policyholder from damages relating to a bad or negligent title examination, and/or hidden defects not otherwise discoverable during a title examination (i.e., forged documents).

Who issues title insurance?

Title insurance is provided by title insurance companies. Prospective home purchasers do not have to go with the title insurer recommended by a seller. Rather, they are free to shop around for the best rate.

What is a title examination?   

Prior to issuing a policy, the title insurance company will have a trained professional conduct a title examination, meaning they will examine all of the public records relating to the property in question.

Specifically, the title examination will determine who definitively owns the property, whether it's subject to any encumbrances or whether any action must be taken to cure title defects.

How does title insurance factor into the closing?

Before the title insurance policy is actually issued at the closing, the title insurance company will prepare what is known as a title commitment. This document outlines everything from the names of the policyholders and a legal description of the land to items that must be satisfied in order for the policy to be issued and a list of coverage exceptions.

Can the title commitment be reviewed?   

Experts indicate that prospective homebuyers should make every effort to review the title commitment or, perhaps even more preferable, have it reviewed by a legal professional. Indeed, a trained attorney can spot problematic items in the document and attempt to have them removed prior to the closing.

If you have questions or concerns relating to any aspect of the closing process, consider speaking with a skilled legal professional as soon as possible.

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