YOU ASK:

How does title insurance work?

WE ANSWER:

Title insurance works by protecting you against future losses due to past problems with the title of your property. This may cover against fraud and forgeries, undiscovered or undisclosed heirs, encumbrances and liens, as well as other related risks.

What happens is that title officers of the insurance company will do a thorough search and examination of public records. This is to know the status of the property even before you close the deal with the purchase of the property. The title search will try to determine whether there are problems with the lien or easement, unpaid mortgages or taxes, issues with the previous owners and any other problems that will affect your ownership of the property. Then the title insurance company will issue a certificate of title and will provide a professional opinion of the statues of the property.

The protection is only limited to the initial purchase price, and will not cover the equity that you have already earned.

For example, you buy a house for $150,000. Later on, you lose the title of that house because of a title defect and the current worth of the house is $200,000. The insurance will only cover you for up to the original purchase price of the home.

If you are buying your property under a mortgage, the lender will require you to buy title insurance and homeowner's casualty insurance. Once the title is cleared, you, your lender and a real estate professional will start the process of closing the transaction and getting all the documents ready and properly recorded. Then, when the deal is closed, the transfer of the title is duly recorded and a title insurance policy is provided not just to you but to the lender as well.

Then the title insurance is issued and will help you retain and protect your ownership rights for as long as you retain an interest in the property. Depending on the agreement, it may be the buyer, the seller or both who will pay the one-time premium upon closing. The title insurance premium includes title search and examination, documents processing and the title insurance coverage itself.

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