Purchasing insurance to protect individuals and their assets is familiar to most. People generally recognize the importance of having a health plan to cover the expenses of accidents or illnesses and protect their real estate and personal property against loss or damage caused by accidents, theft, fire, floods, hurricanes, theft, or vandalism. However, the idea of property title insurance is perhaps not as familiar.
Buying a property is often one of the biggest single investments in one’s life. When considering a real estate purchase, buyers consider many factors, such as location, property condition, price, and size.
Buyers often assume that the person selling the property is the rightful owner and can transfer the title to the property to the buyer. Depending on the property’s age, ownership may have passed through different hands during the time elapsed from its construction to acquisition by the buyer. There may be encumbrances from someone who has carried out 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.
In English, issues that may affect real estate’s free and clear ownership are often called “clouds on title.” It is essential to ensure that the ownership of the acquired property is free from “clouds on title,” such as encumbrances, encumbrances, and adverse claims. While modern technology and comprehensive record-keeping make it possible to verify the chain of ownership and current ownership, there may be unknown and unforeseen issues that jeopardize the potential buyer’s interest in the property. Some “clouds on the title” may not even be known to the seller. It is precisely 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 unsure 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 hold, use, possess, encumber, and sell real estate.
While the concept of title exists in many countries and jurisdictions across the planet, title insurance is predominantly found in the United States. It is a unique form of indemnity insurance used in real estate transactions, which provides insurance against losses arising from defaults or disputes regarding the title and unenforceability of collateral held by mortgage lenders. In case of contestation of ownership of the property, the title insurance company (responsible for issuing the policy and indemnifying against losses) will defend your 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, where you pay a monthly or annual premium for as long as the policy is active, with property title insurance, you only have to pay a one-time premium, and the policy remains in effect for as long as you own it off the property.
While there are three types of property title insurance policies, the two most common are homeowner’s insurance and lender’s policies. The homeowner’s policy is generally purchased when the property is purchased and transferred to the new owner and provides coverage and indemnification against third-party title claims. Typically, coverage is provided at an amount equal to the purchase price. Although not legally required, obtaining an owner’s 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 refinish real estate secured by a real estate mortgage. A creditor’s policy indemnifies the creditor against the loss of enforceability or seniority of his mortgage security. The coverage provided by the lender’s policy usually corresponds to the loan amount under the mortgage guarantee.
Another less common form refers to the tenancy title insurance policy, which a tenant can purchase with a high lease to protect his rights as the lessor of the property against third-party claims.
While not always legally required, Title insurance is necessary to prevent third-party claims that could compromise property rights. This insurance offers security and peace of mind to property owners, in addition to ensuring that they will not lose their properties and their relevant investments due to fraud committed by a bad faith seller, pending encumbrances, or other claims by third parties that constitute “clouds on title”. . We recommend that all property buyers 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.
