Why Do You Need It?
When you buy a home, or any property, you expect to gain certain benefits from your ownership. For instance, you expect to have the freedom to use the property as you like and to be free from debts or obligations against the property that were not created by you. You also expect that you can freely sell your property or pledge it as security for a loan. Title Insurance is intended to cover these rights.
What is a Title?
Title is the evidence of a person's right to the ownership and possession of land. It is possible that someone other than the purchaser has a legal right to the property. If that right can be established, this person can claim the property outright or make demands on the owner as to its use.
Do I need Title Insurance?
Most definitely! Title insurance is a means of protecting yourself from financial loss in the event that problems develop regarding the rights to ownership of your property. There may be hidden title defects that even the most careful title search will not reveal. In addition to protection from financial loss, title insurance pays the cost of defending against any covered claim.
What can make a Title Defective?
Any number of problems that remain undisclosed after even the most meticulous search of public records can make a title defective. These hidden "defects" can be particularly dangerous, because you may not learn of them for many months or years after you acquire title. Certain defects can force you to spend substantial sums on a legal defense and may still result in the loss of your property.
But the lender already requires Title Insurance, won't that protect me?
There are two types of Title Insurance. Your lender likely will require that you purchase a Lender's Policy. This policy only insures that the your lender has a valid, enforceable lien on the property. Most lenders require this type of insurance and typically require the borrower to pay for it. The lender's policy only covers the amount of its loan, which is normally less than the full value of the property. The lender will not usually be concerned with an adverse title claim unless its loan and its ability to foreclose and recover its principal and interest are placed in jeopardy. In the event of such a claim, the lender's policy also fails to provide coverage of legal expenses incurred by an uninsured party.
On the other hand, an Owner's Policy is designed to protect you from title defects that existed prior to your policy's issue date. Title troubles, such as improper estate proceedings or pending legal action, could put your equity at serious risk. If a valid claim is filed, in addition to financial loss up to the face amount of the policy, your Owner's Policy covers the full cost of any legal defense of your title.
How much does Title Insurance cost?
The one-time premium is directly related to the value of the property you are acquiring. Typically, it is less expensive than your annual auto insurance. Although Title Insurance is a one-time only expense, paid when you purchase your property, it continues to provide complete coverage for as long as you or your heirs own the property.
Should I shop around for the best Title Insurance deal?
The state of Pennsylvania closely regulates Title Insurance rates. The premium required to purchase both a Lender's and an Owner's Policy are based upon the value of the interest being protected. With a Lender's Policy, this will be the amount of the loan, while the premium for an Owner's Policy is based upon the total value of the property.
When buying an Owner's Policy, the cost is reduced by the amount of the premium paid for Lender's Policy. For example, John purchases a $200,000 home by borrowing $180,000 from the Lender. He is required to buy a Lender's Policy to cover $180,000, which currently costs $1,300. The premium for an Owner's Policy insuring the entire $200,000 is $1,400. However, because he has already paid $1,300 towards title insurance, John can obtain an Owner's Policy for the difference, just $100.