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It is insurance
against loss or damage resulting from
title defects or loss of rights to a particular
parcel of real property.
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To protect the most
important investment you'll likely ever
make - your real estate investment.
Without a title insurance policy, you may
not be fully protected against errors in
public records, hidden defects not disclosed
by the public records, or mistakes in examination
of the title of your new property. As a
result, you may be responsible for any or
all prior liens, judgments or claims brought
against you and your new property. The good
news is your policy insures that if such
an event arises, you will be defended free
of charge against all covered claims and
paid up to the amount of the policy to settle
valid claims. |
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There are two primary
types:
The first one protects the new property
owner or the buyer. Owner's Coverage is
issued at the time the buyer purchases the
property. Coverage is paid based upon the
purchase price or the loan amount, whichever
is greater. Coverage continues as long as
the buyer or the buyer's heirs have an interest
in the property. Please note that an Owner's
policy is typically not issued when you
refinance, because ownership did not change.
The second one protects the lender or bank.
Lender's or Mortgagee's Coverage protects
the lender's investment in the property.
This policy insures the lender against title
defects that may affect the security of
the mortgage loan - not the buyer's investment.
The lender's title insurance policy is based
on the amount of the loan or mortgage. Even
if the lender has a title policy, the buyer
still needs an owner's title policy in order
to protect his/her interest and equity.
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Here are just a few of the most common hidden
risks that can cause loss of title or create
an encumbrance on title:
>False impersonation of the true owner
of the property
>Forged deeds, releases or wills
>Undisclosed or missing heirs
>Instruments executed under invalid or
expired power of attorney
>Mistakes in recording legal documents
>Misinterpretations of wills
>Deeds by persons of unsound mind
>Deeds by minors
>Deeds by persons supposedly single,
but in fact married
>Liens for unpaid estate, inheritance,
income or gift taxes
>Fraud |
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For a one-time premium,
an owner's title insurance policy remains
in effect as long as the insured, or the
insured's heirs, retain an interest in the
property, or have any obligations under
a warranty in any conveyance of it.
As for the Lender's policy, it's the same
as above except conversely and applies to
it's successors and/or assigns as their
interest may appear. |
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When you buy a property,
it's based upon the purchase price. When
you refinance, it is based upon the loan
amount. The premium is paid only once and
remains in force for as long as the property
is owned by the insured. |
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A title search is
the process of determining from the public
records: Property owner(s), Chain of title,
Mortgage liens, Tax liens, Mechanics liens,
Municipal Liens, Judgments, Easements and
Restrictions, etc. A thorough search assures
that the buyer is getting all the rights
to the property (title) that he or she is
paying for. |
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It's because a separate
policy is needed by the new lender. The
new lender requires assurance that their
mortgage or loan is going to be in highest
priority lien position or known as "first
position". If you have a second loan,
the second lender also requires assurance
that their loan will be placed in the "second
position", not 3rd or 4th.
The other reason why the new lender requires
title insurance is because they do not know
what exactly has happened to your property,
if anything at all. Therefore, the lender
relies on a Title company to assure and
insure against unknown liens, judgments,
etc.
This applies even if you'd refinance 3 months
ago.
Lastly, Lenders also insist on a new title
policy because many mortgages are packaged
as securities and sold to investors in the
secondary mortgage market. Title insurance
is the only practical way to provide the
assurance investors demand and to ensure
that the mortgages backing these securities
are valid and enforceable. |
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