Title Insurance

"Title Insurance" is a topic hardly any homeowner or potential buyer is
aware of, even though they pay or are bound to pay the cost for it. Most
property owners think title insurance is just one of those expensive closing
costs and nothing really ever comes back from it. Some people do not
even know 'What does it insure for'.

There are two types of title insurance policies:
(A) Lender's Title Insurance: Almost every institutional mortgage lender
needs lender's title insurance policy. The buyer (and occasionally the
home seller) usually pays for this policy. A lender's title insurance policy
protects the lender against title losses due to forged signatures (the
biggest cause of title insurance losses), recording mistakes, errors in deed
indexing, unpaid property taxes and other recorded liens, improper
foreclosures, title search mistakes, undisclosed easements and title claims
by heirs and ex-spouses. So, it protects the lender not the homeowner.

(B) Homeowner's Title Insurance: The homeowner's equity up to the policy
limit of the purchase price for can be insured by an extra one-time
premium. This insures homeowners and the owner's heirs from loss of
equity against most of the common causes of title losses as described
above. At the time of home purchase, this equity (basically your
down-payment) may not be much. However, as time passes by, mortgage
balance is paid down and the homeowner's title protection grows as the
lender's title coverage reduces.

You may not find anyone you know who got something back from this
insurance. According to a report from The American Land Title Association
in Washington, D.C., the title insurance companies pay less than 10% of
title insurance premiums collected for title claims, which is no doubt a
shockingly low pay back. The reason they provide is that the insurers
spend most of the premiums on background research on the title before
issuing policies. However, there is no doubt that some serious cases of title
losses cannot be prevented and that is why this insurance is a necessity.
For example, "Forging signature by collaborating with some corrupt
notary public by some close relative or partner to sell a house without
letting the owner know" is not an uncommon case. In such cases, the title
insurer must pay the forgery loss claim.