Title Insurance works just like any other type of insurance policy.
You purchase title insurance by paying a one-time “premium” for the policy at the time you acquire ownership of the property. If a defect in the title is discovered while you own the property, the title insurance policy provides you with a legal defense against such claim and provides compensation in the event that the defect causes a loss of title. Not only will the title insurance policy pay the legal fees and costs to defend a claim against your ownership, but it will also compensate you for your loss in the event the claim is successful.
The premium is a small price to pay to protect the biggest investment you will ever make!
What is Title Insurance
When you purchase real estate, you receive a “Deed” to the property which is the evidence of your ownership of, or “title” to, the real estate. Title insurance protects you against hidden defects in prior deeds and against errors in the real estate transaction – either of which can negatively affect your title or ownership of the real estate. These hidden defects would not necessarily show up in the Land Records, but could deprive you of title nonetheless.
Maryland Trust Title & Escrow, LLC, is an agent for Commonwealth Land Title Insurance Company, one of the nation’s leading title insurers. Commonwealth Land Title Insurance Company issues title insurance policies for commercial and residential customers throughout the United States, Mexico, Canada, the Caribbean, Latin America, Europe and Asia. This affiliation gives Maryland Trust Title & Escrow, LLC access to Commonwealth Land Title Insurance Company vast resources and expertise in title matters.
Types of Title Defects
When you place an order for a real estate settlement with Maryland Trust Title & Escrow, LLC, our professionals will order an Abstract of Title from Titlewave. The title abstractor will search and review all of the pertinent public records for the county in which the property is located. Based upon this search, the title abstractor will create the title abstract. This is essentially a report of all those publicly recorded events that affect ownership of the property. We will review the Title Abstract to see what liens, defects or other encumbrances may attach to or affect your title to the property.
However, even though great care is taken by the title abstractor in creating the title abstract and by our staff in examining your title, there can still be hidden defects in your title. Such defects are not easily identifiable from the search of the public records.
Common defects include:
- Mistakes in the recording of legal documents
- Forged deeds, releases of mortgages and wills
- Undisclosed or missing heirs
- Deeds by persons of unsound mind
- Deeds by minors
- Deeds executed under invalid or expired powers of attorney
- Liens for unpaid taxes
When a title insurance policy is issued, the title insurer assumes the responsibility for all these hidden defects and others that may affect your title to the property.
Lenders Coverage & Owners Coverage
There are two types of title insurance policies that you should be familiar with when purchasing or refinancing your home.
1) Lender’s Coverage
Whenever you borrow money from a Lender to finance the purchase of your property or to refinance an existing loan, your property is used as collateral for the loan. This means that the Lender places a lien on your property so that if you do not pay the loan according to its terms, the Lender can foreclose on the property and sell it to satisfy your loan obligation. Because of this, it is important to the Lender that you have good and clear title to your property. If it is necessary for the Lender to foreclose on your property, the Lender must be certain it will be able to easily re-sell the property to satisfy the loan.
To protect itself against the chance for there to be hidden defects in your title, the Lender requires that you purchase a Lender’s Policy or Loan Policy of title insurance. This type of policy insures the Lender against any undisclosed defects in your title and provides protection to the Lender in case a defect is later discovered. A lender’s title insurance policy typically insures the Lender for the amount of your loan. The Lender requires that you pay the Loan Policy Premium associated with the Lender’s Policy at the time of settlement and this Loan Policy Premium will be shown on Line 1104 of the ALTA settlement statement and Closing Disclosure.
Each time you refinance your property or take out a new loan on your property, you will have to purchase a new Lender’s Policy of Title Insurance.
2) Owner’s Coverage
Through Owner’s Coverage, you too can receive the same protection as the Lender. Whereas the Lender’s Coverage protects and insures the Lender against any defects in your title up to the amount of the loan, the Owner’s Coverage protects your interest in the event that a claim is made against your title to the property. To put it another way, if a claim against your title is made and it is determined that you do not have the ownership interest in the property that you believed, the loan policy will make the Lender whole by paying the Lender up to the face amount of the policy. However, unless you have also purchased Owner’s Coverage, any equity that you have in the property could be lost.
The premium for the Owner’s Policy of title insurance will be shown on the ALTA settlement statement and Closing Disclosure and will be collected at the time of settlement. As opposed to a Lender’s Policy, which must be purchased every time you refinance your property, an Owner’s Policy must only be purchased one time and will remain effective regardless of how many times you may refinance your property. Also, although the lender will require that you purchase a Lender’s policy of title insurance, it is your decision as to whether you will purchase an Owner’s Policy. However, if you purchase an Owner’s Policy at the same time that you purchase the Lender’s Policy, you will be entitled to a “Simultaneous Issue” rate, which will be less than if you purchased the two policies separately.