Q. What is title insurance, and why should I buy a title insurance policy for my home?
A. Your home is probably your most valuable asset. When you buy a home, you're buying more than the structure and the land it sits on. You are also buying its legal history, as it is identified in the title. If there's a problem with the title that was never uncovered or resolved before the closing (such as a lien on the property), that problem is now yours.
Title insurance protects against loss resulting from matters affecting the title to real property. The title insurance policy is an agreement to indemnify the insured for any loss sustained as a result of defects in, or liens upon, the title to real property, which were in existence on the date of the title insurance policy, but were not excluded from coverage by the terms of the policy.
Title insurance companies evaluate the history of the property and ensure that nothing in the chain of title will result in a loss to the insured. This is done based upon a thorough title search in the public records. If the title search reveals a defect, the defect must either be cured prior to the policy date or shown as an exception on the policy. Occasionally, if the defect is minor, the title insurance company may approve this issuance of the policy free of an exception for the defect or with affirmative coverage relating to the defect, even though the defect remains uncured.
Chances are, when you bought your home, you financed it with a mortgage. Most lenders require a title insurance policy to be purchased in the lender's name. That policy is called loan policy and it is required to insure the validity of the mortgage as a lien on your property. The loan policy is for the benefit of the lender and terminates once the loan is paid off. Even though you pay for it at the closing, it does not protect you. You cannot make a claim under the loan policy.
In order to protect yourself, as the owner of the home, you must purchase a separate policy called an owner's policy. An owner's policy covers the value of your interest in the property as opposed to the value of just the loan. The owner's policy provides coverage for you personally not just for the time you own the property, but for as long as you might be liable to any future owner. Unlike other forms of insurance that require annual payments, title insurance only requires a single one-time premium payment.
Real estate transactions can be complicated and time consuming, and may involve some degree of risk. If you have questions about purchasing property and title insurance, you should seek advice from an attorney.
Published in the Union Leader (7/7/2019)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.