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What Is Title Insurance and Is It Required?

In general, title insurance is an indemnity insurance covering the loss of ownership of a real property interest due to title defects or liens.  There are two types of title insurance, one of which is required and the other is optional, though strongly recommended under certain circumstances.

A Lender’s Title Insurance policy, which is required by banks and mortgage companies to insure the priority and validity of the collateral for their loan, must be purchased by the property buyer for the protection of the lender.  This insurance provides limited protection to the buyer, but this policy terminates when the loan is paid off.

Though optional, we absolutely recommend an Owner’s Title Insurance policy anytime someone buys a property that an attorney does not close and does not give a title opinion on; otherwise, the owner will have no assurance of the validity of the title.  When a buyer uses an attorney for the closing who gives an opinion on the title, we also recommend that the buyer purchase title insurance for risks beyond those covered by the attorney which, though unlikely, could be quite significant.

Such risks include (1) errors in the public records, such as incorrect information in deeds and mortgages regarding names, signatures or legal descriptions; (2) judgments, liens, unpaid taxes and other claims against the property resulting from errors in indexing or recording those items; and (3) invalid deeds due to forgery, fraudulent transfers or transfers by previous owners who were minors or not mentally competent.

To acquire an Owner’s Title Insurance policy, you pay a one-time premium, and the policy would pay for the legal expenses to remedy any title defects and pay for losses due to hidden defects in the title.  This policy lasts in perpetuity.

For advice on the need to purchase Owner’s Title Insurance on your property, please contact us at Layman & Nichols, P.C.

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