What in Tarnation is Title Insurance?

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In a Nutshell:
Property in America is a BIG deal. Knowing exactly who owns it, if anyone else has a hold on a piece of it, and who has rights to play on the property, is an equally BIG deal. Here is the peace of mind you are paying for with title insurance: The seller you are buying from is actually the seller. The seller will own the property outright (clear) by the time it is transferred over to you. If someone ever legally put a lien (a right to possession until a debt is paid in full) on the property and the seller didn't tell you about it when you bought it, and the person that placed that lien on the property wants their money at the time when you own the property, the title company will handle it and you can sleep good at night!
For all these things, the seller pays for the policy which insures you (owner’s policy), and you pay for the policy which covers the lender (because they have a loan amount interest in the property as well). The policies are paid at closing, and the one you pay for as a borrower (lender’s policy) is part of the closing costs.

Full Story:
Title insurance is alike to any insurance, however title insurance covers things that happened in the past, whereas something like car insurance covers future events. So why are we looking backward for insurance? When title insurance is ordered, the title company will research the property to find what information the new buyer/owner ought to be aware of, or what needs to be handled before the home can transfer ownership from one person to the next. The Title company looks at the history and current status of the property to help you, and the bank, determine if the house is able to be transferred (sold) at this point. If the title is not “clear”, then steps need to be taken by the current owner to clear it. By providing title insurance, the title company is insuring that the research they have done is complete and there should be no other terms with the property which they have not already listed on the title report. In the event that the title company did miss something in their research, the owner of the title policy can be worry-free, because their insurance will cover the expenses of any title related issues. When you buy a home with a mortgage, you have ownership, but the bank also has an attachment to the property because they put a lien on the property. As there are two parties here with an interest in the property after the sale, there needs to be two policies to cover the two different parties.
When buying a home with a mortgage, there will be two title insurance policies required. The first policy is the Owner’s title policy; the seller of the property typically pays for this. As the name suggest, the owner’s policy covers the new owner of the property. As stated, if any problems from title arise (think mechanical lien not reported on your title report), then the title company will cover any expenses, and they will handle the title problems. The second policy issued is the lender’s policy. This policy covers the lending institutions interest in the property up to the loan amount. Just as you are covered under the owner’s policy, the bank would be covered for title issues under the lender’s policy. Because you are obtaining the loan to buy the home, the cost of the lender’s title policy is included in your closing costs.
The cost of title insurance to you as a buyer/borrower depends on the loan amount and what company you use for title insurance. As you might guess, the higher the loan amount, the higher the title policy costs. The cost of title insurance typically varies slightly company by company, but you are getting the same coverage by whatever company you do choose. However just like a car insurance company, when you do need to deal with a problem, having a company you can enjoy working with is important. It should be noted that title insurance is a onetime fee paid at closing, and it will cover you for as long as you own the home; the bank is covered by the lender’s policy for as long as there is a loan balance on the home.

Maverick Johnston 江马克
509-230-0768
NMLS ID #1668965

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