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What is Title Insurance?

title-fees-house-saleWhen you become involved in a real estate transaction in the Bay Area, you will probably be hit with a number of unfamiliar terms, fees and requirements. One of the costs associated with a real estate transaction is title insurance. The buyer of your home will need title insurance if they want to buy the home.

Title insurance for the property owner, called the Owner’s Policy, is typically purchased as a one-time fee at closing and remains valid as long as the owner has an interest in the property in the Bay Area. The Owner’s Policy protects the buyer if any title problems come up that were not found during the title search in escrow. Potential hidden issues include:

  • Errors in deeds
  • Mistakes in examining records
  • Forgery
  • Undisclosed heirs

Title insurance for mortgage lenders, on the other hand, is known as a Loan Policy. This is required by virtually all lenders when they issue a mortgage. The Loan Policy is often based on the dollar amount of the loan and protects the lender if any issues with the title come up, but it does not protect the buyer. This policy amount will decrease every year and eventually disappear when the loan is paid off.

Why Title Insurance is Necessary

title-feesWhile title policy claims are rare, potential problems can cause the buyer to lose the home.

When you buy a house, you want to ensure the person who sold it had full, legal title. Unfortunately, official records can be wrong, or the person who did the title search may have made a mistake. Sometimes important information is simply not recorded.

Many issues can potentially cloud titles and lenders and owners do not want this. What if there is a contractor with a claim against the property for work done years ago? What if an owner, decades ago, had an unknown, extra spouse? This wouldn’t turn up on local property records, but it can make a complex legal case.

Who Pays for Title Insurance?

Who pays for title insurance depends on what is customary in the area. In many cases, the buyer pays for the lender’s title insurance policy, while the seller pays for the Owner’s Policy. Sometimes, though the buyer pays for both policies, or the buyer and seller split the cost of the Owner’s Policy.