Title insurance works a little different than most types of insurance that you may be familiar with, because instead of protecting from the liability of potential future events, it protects from past ones. In other words, it covers the buyer starting from the time of purchase and going backward. If there are any unsatisfied liens or any title issues in the history of the property outside of county records that comes to light after the purchase, the buyer and their lender are protected by title insurance.
There are two different types of title insurance to cover each party:
- Lender’s Title Insurance
- Owner’s Title Insurance
Lender’s Title Insurance
Whether one is buying a property for the first time, buying a new property, or refinancing an existing property, all lenders require that the buyer or borrower purchase a lender’s title insurance policy. This fee is a part of the buyer’s closing costs and is determined based on the loan amount. This title insurance policy protects the lender that holds the loan for the subject property from any title issues that may be found after the loan has closed.
While we strive for excellence in the work that we do, this title insurance policy protects the lender from liability for any claims that would result if we should happen to miss a lien or leave one unsatisfied.
Owner’s Title Insurance
While lenders require title insurance to cover their ties to the property, it is wise of a buyer to obtain an owner’s title insurance policy as well. For the same reasons and then some, title insurance covering the buyer protects their ownership of the property from any breaks in the chain of title, record defects, city special assessments, unsatisfied liens or mortgages associated with the property. Again, while it is the job of the title company to pursue in-depth research of the property’s records, sometimes these issues go missed in the property search and can rear their ugly heads later. So, while it might not cause trouble until after closing, title insurance covers things that happened to the property before you purchased it.
What is Covered by Title Insurance?
- Will/Estate Issues
- Missing Heirs
- Forged Signatures
- Unsatisfied Prior Mortgages
- Unsatisfied Liens
When a property is willed by one family member to another before being sold, other family members may come forward claiming rightful ownership to the property and request a fair monetary award. With title insurance, the most recent purchaser would not be on the hook for that payment provided they had no prior knowledge of the claim and the claim had been raised prior to the purchase and closing, rather the title insurance company would pay the rightful previous owner.
There are sometimes cases in which an heir comes forward after the death of a previous property owner and suddenly the legal right to a share of said property is owed to this heir. Rather than have the new property owner pay the heir him or herself, the buyer/borrower would be covered by their owner’s title insurance policy.
Like many other purchases, there are cases of fraudulent activity within real estate. If a purchase occurred unbeknownst to the buyer under fraudulent circumstances involving forgery, the buyer would be protected by title insurance from the associated costs to remedy the issue.
Unsatisfied Previous Mortgages
A buyer might run into issues if a previous owner didn’t use funds from the purchase to satisfy all of the mortgages associated with the property, this also would be covered by the buyers title insurance policy.
A lien is a debt that is attached to your property as collateral. If a previous owner didn’t satisfy a lien, such as an unpaid home improvement bill from a contractor, the lien holder could file a mechanic's lien on the home to insure receipt of payment. If this were to happen, the buyer would be thankful for their title insurance!
If you’re looking for a company that provides outstanding title insurance services, look no further than Liberty Title. With offices located all across the Twin Cities metro, your closing can be all the more convenient for all parties involved. Whether purchasing a commercial or residential property or refinancing, you can trust Liberty Title for exceptional, thorough title and escrow services! Contact us today to schedule your closing.