In simple terms, it is an insurance policy which guarantees the status of ownership and liens on a particular piece of real estate. The title insurer, for example Nippersink Title , issues a policy that the property as of a certain date is owned, subject to certain liens, as shown on the title search. If this is incorrect, and a financial loss is suffered by the insured, the title insurance company will be responsible for a claim.
When purchasing, selling or refinancing a piece of real estate, title insurance is usually required by the lender and the buyer. The buyer wants to be protected that he/she is now the legal owner of the property. The lender needs to be insured its lien is in the proper priority in the event of the borrower’s default on the mortgage.
The title search is a comprehensive determination of ownership of a specific piece of property. The title search will disclose ownership of the property, the liens (e.g. mortgages) against the property and the status of the real estate taxes on the property.
Closing costs cover the services required for a property to change hands. Services required to process the property transaction include title work, appraisals, inspections, document preparation, recording fees and other expenses. Part of the closing costs may also include loan origination fees charged by the loan officer to find the right loan and secure approval.
The lender’s policy covers only the amount of the loan, which is usually not the full property value. In the event of an adverse claim, the lender would ordinarily not be concerned unless its loan became non-performing and the claim threatened the lender’s ability to foreclose and recover its principal and interest. And, in the event of a claim there is no provision for payment of legal expenses for an uninsured party. When a loan policy is being issued, the small additional expense of an owner’s policy is a bargain.