Why Title Insurance Is Important
Almost every sale of real estate, or loan secured by real estate, involves the purchase of title insurance as part of the closing. The cost is not insignificant, with the premium based upon the amount of the policy to be issued. For example, the title premium on a $500,000.00 loan is $2,575.00. The purpose of this discussion is to describe why title insurance is needed and how it works.
There are two types of title insurance policies: an owner’s policy and a lender’s policy. An owner’s policy is issued for the purchase price of the property and insures the owner’s title so long as the owner remains the owner of the real estate. It is a one-time fee based upon the purchase price of the property. The lender’s policy insures the lender up to the loan amount against matters which could invalidate the mortgage or would have lien priority over the mortgage.
Typical matters that impact title include:
- Claims by missing heirs and/or an ex-spouse
- Incorrect legal descriptions in prior deeds
- Missing prior satisfactions of mortgages
- Federal IRS or State of Florida liens
- Judgments against the current or prior owners
- Undisclosed easements or rights of way
- Delinquent property taxes or homeowners assessments
- Survey matters
- Lack of legal access
- Forged signatures
Prior to closing and the issuance of the title policy, the title will be searched and these types of problems should be discovered and resolved. According to Old Republic National Title Insurance Company, one out of every four title searches exposes an issue. On occasion, however, matters may be missed. In such cases, the company issuing the title policy is financially responsible for the owner’s loss, up to the amount of coverage. If a claim is made against the owner, the title insurer will defend the owner’s interest in any court case which may arise, and if the claim is valid, either pay the claim up to the amount of the policy or incur the costs to resolve the claim and clear title. The cost of litigation will likely far exceed the cost of the title premium. A lender is protected in a similar way, up to the outstanding principal balance of the insured mortgage.
Our office is an approved title agent for four national title insurance companies, Alliant National Title Insurance Company, Fidelity National Title Insurance Company, First American Title Insurance Company, and Old Republic National Title Insurance Company.