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Title Insurance Explained
In the past several years, the use of title insurance
as a means of guaranteeing good and marketable title
to real estate has surpassed the use of abstracts of
title. Most of us now have title insurance, but may
not be certain what it is or why we need it. Many people
do not even know that it exists.
Title insurance is like any other insurance policy,
but the perils it covers may not be familiar to you.
The title insurance system is offers far more security
for the buyer and the lender than the old method of
an abstract of title.
Abstracts. Prior to title insurance, ownership of
property was proven by records called abstracts, which
trace a property's ownership history. An abstract is
an historical summary of the information that comes
from a title search; however, a title search can be
done without an abstract.
Abstracts are still compiled today, mostly for information
purposes, but they have a flaw: the only guarantor
of their accuracy is the person, often not a lawyer,
who produces them. If a problem exists in an abstract,
the only recourse of the purchaser is the financial
well-being of the individual or company producing the
title search.
Eventually most lenders decided they wanted to have
more security and title insurance became increasingly
popular. The concept of title insurance is now more
than 100 years old.
Owner's and Lender's Policies. There are several forms
of title insurance but the most common are for the
lenders and for property owners. The lender's policy
is usually for the amount of the mortgage; the property
owner's policy is usually for the purchase price of
the real estate.
In a typical real estate sale, one title search forms
the basis for both policies. The search consists of
checking the property's deed, mortgage, and tax records,
as well as court records to see if there are any unpaid
judgments against prior homeowners. Title insurance
is intended to guarantee clear title to real estate.
This means that the seller actually owns the property
and can sell it to another, and any liens, judgments
or taxes that are owed on the real estate are paid
by the seller at closing or assumed by the buyer.
Insuring Clear Title. For lenders, title insurance
guarantees that property on which they are issuing
a loan has no other liens that might take priority
over the bank lien, if a foreclosure on the property
becomes necessary. A title insurance company assists
the lender in making certain it has a superior lien
position on the real estate.
In Indiana the seller usually pays for the buyer's
policy and the buyer pays for the lender's policy.
The charge for a lender's policy is usually small because
it is based on the same research as the buyer's policy.
The cost of title insurance is related to the price
of the real estate on which the policy is written.
The higher the sale price, the more it costs because
the more risk the title company is assuming.
Almost all lenders now require title insurance. The
end result is that most homebuyers must purchase it.
Filing A Claim. If problems relating to title to a
parcel of real estate arise, the company that wrote
the title insurance will investigate. It operates much
like any other insurance policy: the policy owner files
a claim, the insurance company reviews and investigates,
and then follows a course of action depending upon
the nature of the claim.
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