Closing Explained: Part 8, Types of Title Insurance

As a title insurance company, our purpose is to offer title insurance for a premium to both lenders and purchasers. However, you would be shocked at how many of our clients don’t understand what title insurance is. They just know they need to go to a title company to finalize their real estate transaction. So, I thought I’d explain title insurance to help our customers understand what it is that we do at TitleSmart.  We are a title insurance agency and we offer title insurance policies and facilitate the final closing.  Amongst the many documents you sign and papers you shuffle through at your closing, we are also providing you with an insurance policy for the title of your home.

Title insurance protects the title of your property after the real estate closing transaction has commenced. This is an insurance policy with a onetime premium, collected at closing, insuring your property from the date your transfer documents get recorded at the county and backwards into the past.  The title of your property is the bundle of rights that comes with said property. At TitleSmart, our closers and their teams work flawlessly, ensuring that your title is clear by the time of closing.  The term “clearing the title” of your property means that any past mortgages, tax liens, unpaid water bills, etc. are “cleared.” In addition, we are watchful for big things such as boundary line issues and improper transfers of title in the past, making sure the transfer of the property from the seller to you is complete and accurate.  Unfortunately, there can still be times when someone will attempt to make a claim on your property. In this instance, you would be able to use your title insurance policy to protect your property rights.

When you purchase your property with financing, your lender will require that you purchase a policy to insure them, and you will be provided with the option to purchase a policy to insure yourself as well. If you are purchasing with cash, you are not required to purchase a policy, however, we highly recommend our clients protect themselves.  Below is a brief explanation of the difference between the two policies:

Owner’s Title Insurance:

  • Covers the owner’s interest in the property
  • One-time premium paid at closing, that protects you through the entirety of your ownership
    • Example: You have found the perfect home, and your down payment is 20% of your $250,000 home. You want to protect your $50,000 investment in that property. Title insurance protects your investment by guaranteeing your title is clear and good, and there aren’t any prior owners that still have interest in your property.

Lender’s Title Insurance:

  • Guarantees the lender that they are in first lien position on your title. This is to protect themselves in the case that they have to take the property back at some point.

To close, I’d like to encourage any of you who are ready to purchase a first home, second home, commercial property, or vacant land to purchase title insurance. Real estate is a big investment, and it seems silly not to give it the protection it deserves. You have worked hard for it! If you are looking to purchase and have more questions, leave a comment, call, or email us! We are happy to help you understand title insurance, and the process of closing on your new investment!

Best of Luck!

– Cindy