In the past several years, the use of title insurance as a means of guaranteeing good and marketable title to real estate has surpassed the use of abstracts of title. Most of us now have title insurance, but may not be certain what it is or why we need it. Many people do not even know that it exists.
Title insurance is like any other insurance policy, but the perils it covers may not be familiar to you. The title insurance system offers far more security for the buyer and the lender than the old method of an abstract of title.
Abstracts. Prior to title insurance, ownership of property was proven by records called abstracts, which trace a property’s ownership history. An abstract is an historical summary of the information that comes from a title search; however, a title search can be done without an abstract.
Abstracts are still compiled today, mostly for information purposes, but they have a flaw: the only guarantor of their accuracy is the person, often not a lawyer, who produces them. If a problem exists in an abstract, the only recourse of the purchaser is the financial well-being of the individual or company producing the title search.
Eventually most lenders decided they wanted to have more security and title insurance became increasingly popular. The concept of title insurance is now more than 100 years old.
Owner’s and Lender’s Policies. There are several forms of title insurance but the most common are for lenders and property owners. The lender’s policy is usually for the amount of the mortgage; the property owner’s policy is usually for the purchase price of the real estate.
In a typical real estate sale, one title search forms the basis for both policies. The search consists of checking the property’s deed, mortgage, and tax records, as well as court records to see if there are any unpaid judgments against prior homeowners. Title insurance is intended to guarantee clear title to real estate.
This means that the seller actually owns the property and can sell it to another, and any liens, judgments or taxes that are owed on the real estate are paid by the seller at closing or assumed by the buyer.
Insuring Clear Title. For lenders, title insurance guarantees that property on which they are issuing a loan has no other liens that might take priority over the bank lien, if a foreclosure on the property becomes necessary. A title insurance company assists the lender in making certain it has a superior lien position on the real estate.
In Indiana the seller usually pays for the buyer’s policy and the buyer pays for the lender’s policy. The charge for a lender’s policy is usually small because it is based on the same research as the buyer’s policy.
The cost of title insurance is related to the price of the real estate on which the policy is written. The higher the sale price, the more it costs because the more risk the title company is assuming.
Almost all lenders now require title insurance. The end result is that most homebuyers must purchase it.
Filing A Claim. If problems relating to title to a parcel of real estate arise, the company that wrote the title insurance will investigate. It operates much like any other insurance policy: the policy owner files a claim, the insurance company reviews and investigates, and then follows a course of action depending upon the nature of the claim.