Property ownership issues often do not make themselves known until late in the real estate process, leaving buyers to sort through complex title affairs. However, title insurance protects buyers and their lenders from these issues, making it an essential part of any real estate transaction. Here’s how it works:
In real estate transactions, it is not unusual for issues to arise regarding a property’s title.
Title insurance protects an owner’s or a lender’s financial interest in real property against losses due to unknown defects of title to the property at the time of sale. These defects may include, but are not limited to liens, easements, or other encumbrances that were not discovered during a search of the property’s title history conducted before the sale.
Title insurance fundamentally transfers the risk of loss from the insured to the insurance company. In exchange for assuming this risk, the insurer receives a payment known as a premium. Title insurance is unique in that the premium is not paid over-time, but rather, it is a one-time premium paid by the buyer (or in the case of a re-finance, the borrower) at closing.
The Pennsylvania Insurance Department strictly regulates title insurance premiums in Pennsylvania, making premiums uniform among all title insurers. This means that the cost of title insurance is the same whether you obtain title insurance through a title insurance company affiliated with a law firm, such as KingSpry, or whether you use a third-party title company. All Pennsylvania title insurance companies and title agents are required to maintain valid state licenses.
A Lender’s Policy is usually required for financing secured by real property.
When a property is financed, bought, or sold, a record of that transaction is usually filed in the public records, as well as records of other events that may affect the ownership of a property, such as liens or easements. Prior to issuing a policy of title insurance, the insurance company will require a title search, which consists of a review of public records to determine a property’s ownership status, identify any issues, and remedy them prior to closing, if possible. The insurance company will then determine the insurability of the title and may issue a commitment to provide title insurance.
If a transaction involves a mortgage, a lender will generally require a Lender’s title insurance policy. A Lender’s policy ensures that the lender has a valid, enforceable lien on the property and protects the lender for as long as it maintains an interest in the property, typically until the mortgage is paid off.
An Owner’s Policy protects purchasers from title defects that existed before the issue date of the policy.
Since a Lender’s policy only protects the lender, a borrower should also obtain an Owner’s title insurance policy to protect their interests. In a cash deal, or a transaction that does not involve financing, the buyer should similarly secure an Owner’s policy.
Obtaining an Owner’s policy is recommended to insure against the most unforeseen problems that may occur and are not found in the public records or inadvertently missed in the title search process. Suppose a covered title problem arises with the title that was not discovered during the title search. In that case, only an Owner’s policy will fully protect the buyer, subject to its terms and conditions, and will cover the monetary loss in an amount up to the face amount of the Policy.
The Owner’s policy is usually provided in the amount of the purchase price paid for the property, purchased for a one-time fee at closing, and it remains in effect for as long as the owner or the owner’s heirs have an interest in a property.
Title issues can limit, or entirely prevent, an owner’s use and enjoyment of their property and may bring them financial loss.
Obtaining title insurance helps to mitigate risk by protecting the financial interest of a lender and/or owner of real property. In the event of a claim, the title insurance company may cover the costs related to clearing those title defects or defending against lawsuits filed by third parties related to title. Additionally, it may reimburse the insured for the pecuniary loss incurred, up to the amount provided by the policy.
Purchasing and financing real estate is a significant financial investment, and it is important to consult with an experienced real estate attorney. If you are purchasing real estate, securing financing that includes a mortgage on real property, or facing issues concerning the title to a property you already own, KingSpry’s team of experienced Real Estate attorneys are here to assist you through all phases of your real estate transaction, including providing title insurance services through its licensed title agents. When you are ready, contact one of the Real Estate attorneys at KingSpry.