PROPERTY TITLE INSURANCE: WHAT IT IS AND WHY YOU NEED IT

Purchasing insurance to protect individuals and their property is a familiar concept to most. In general, people recognize the importance of having a health plan to cover expenses with accidents or illnesses, as well as to protect their property and personal property against loss or damage caused by accidents, theft, fire, floods, hurricanes, theft or vandalism. However, the idea of ​​title insurance may not be all that familiar.

Buying a property is often one of the biggest individual investments in one’s life. When considering a property purchase, buyers take into account several factors such as location, property condition, price and size. Buyers often assume that the person selling the property is the rightful owner of the property and is able to transfer title to the real estate property to the buyer. Depending on the age of the property, ownership may have passed through different hands during the time elapsed from its construction until its acquisition by the buyer. There may be liens from someone who has done work on the property, unpaid taxes, easements, or previous owners, creditors or heirs who want to claim some right or interest in the property, for example.

Issues that may affect the free and unencumbered ownership of real estate are often referred to in English as “ clouds on title ” (literally, meaning “clouded title”). It is essential to ensure that the ownership of the property being acquired is free from “ clouds on title ”, such as liens, liens and adverse claims. While modern technology and extensive record keeping allow you to verify the chain of title and current ownership, there may be unknown and unforeseen issues that compromise the potential buyer’s interest in the property. Some “ clouds on title ” may not even be known to the seller. It is exactly in these situations that property title insurance plays a crucial role.

Many homebuyers, especially foreign investors, have never heard of title insurance, are unaware of its function and are not sure if they need it. This article will explore the concept of title insurance, the protections offered, the different types of policies, and why title insurance is so important.

Ownership is the fundamental concept of real estate ownership and evidences the legal right to own, use, own, encumber and sell real estate. Although the concept of title exists in many countries and jurisdictions across the globe, title insurance is predominantly found in the United States. It is a unique form of indemnity insurance used in real estate transactions, which guarantees against losses arising from defects or disputes regarding the title and unenforceability of collateral held by mortgage lenders. In case of dispute of ownership of the property, the title insurance company (responsible for issuing the policy and indemnifying against losses) will defend its title to the property and bear the related costs and any loss in property value suffered as a result of an adverse claim. Unlike conventional insurance, in which a monthly or annual premium is paid for the period the policy is active, in property title insurance you only need to pay a single premium and the policy remains in effect for as long as you are the owner. of the property.

While there are three types of title insurance policies, the two most common types are the homeowners policy and the creditor policy. The homeowners policy is generally purchased when the property is purchased and transferred to the new owner, and provides coverage and indemnity against title claims made by third parties. Coverage is typically provided at an amount equal to the purchase price. While not legally required, obtaining a homeowners policy is a wise decision that provides considerable and ongoing protection for a relatively low investment. A lender’s policy is almost always required by the lender making a loan to purchase or refinance real estate secured by a real estate mortgage. A lender’s policy indemnifies the lender against the loss of enforceability or priority of its mortgage guarantee. The amount of coverage provided by the lender’s policy usually corresponds to the amount of the loan subject to the mortgage guarantee.

Another less common form is the property title insurance lease policy, which can be purchased by a tenant on a high-value lease to protect their rights as lessor of the property against claims by third parties.

Property title insurance, while not always legally required, is necessary to avoid claims by third parties that could compromise property rights. This insurance provides security and peace of mind to property owners, as well as ensuring that they will not lose their properties and relevant investments due to fraud committed by a bad faith seller, pending liens or other claims by third parties that constitute “ clouds on title ” . We advise all homebuyers to protect their property rights and the future rights of their heirs by consulting a lawyer specializing in real estate law and obtaining an appropriate insurance policy.

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