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So, unless a
homeowner possesses a clear title, he or she risks losing his/her
home and the land under it. Title insurance guarantees the title
as reported.
Actually there are two types of title insurance:
lender policy and the owner's title insurance. Most lenders
require a loan policy when they issue you a loan to protect
their interest (the amount they loaned you) should a problem
arise. The policy amount decreases each year and eventually
disappears once the loan is paid off.
Therefore the owner should
also have title insurance to protect his/her financial interest.
Only owner's title insurance fully protects the buyer. Should
hidden defects surface at any time challenging an owner's rights,
the title company will defend the title, in court, if necessary,
and cover the owner's losses up to the full value of the policy.
But before title insurance is issued, the title company (or
attorney, depending on the local practices and laws) performs
a title search.
A title search involves searching public land
records to ascertain if the seller has the legal right to sell
the property. The title company will: conduct a chain of title,
which is a review of the owner history of the property, checking
for who purchased the property, who sold it, and when; perform
a tax search to verify the present status of taxes; conduct
a judgment search to determine whether there are any general
liens against the property; and, sometimes even, conduct on-site
inspections to verify lot size, the location of improvements,
and evidence of unrecorded easements.
According to the American
Land Title Association, 25 percent of title searches find a
title problem that is fixed before the insurance is issued.
At this point, you may be wondering why you even need insurance
following an exhaustive title search. Unfortunately, it's nearly
impossible to guarantee a title is clear of hidden defects--those
circumstances that could find you in a tug of war over the property.
Examples of hidden defects include mistakes in interpretation
of wills and other legal documents, liens for unpaid estate
or inheritance taxes, deeds by persons of unsound mind, impersonation
of the real owner, forgery, missing or undisclosed heirs, falsification
of records, and confusion stemming from similar names. Your
home is probably one of your largest investments. For a one-time
premium, you can have peace of mind for as long as you or your
heirs retain the property. Talk with your real estate professional
for more information on title insurance and selecting a title
company.
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