If you have purchased a home before, then you’re probably familiar with the benefits and procedures of title insurance. However, if this is your first time buying a home in the Nashville area, you may be asking “Why do I need another insurance policy and one more bill to pay?"
Since buying a home in the Nashville area is most likely one of the most expensive and important purchases you will ever make, you and your mortgage lender want to make sure that no individual or government entity has any right, lien, claim to your property.
Title insurance is crucial for a home buyer because it protects you and the lender from the possibility that your seller doesn't - or previous sellers didn't - have free and clear ownership of the house and property and, therefore, can't rightfully transfer full ownership to you.
Two Types of Policies
Title companies issue two types of policies: “owner’s”, which covers you, the homebuyer; and “lender’s”, which covers the bank, savings and loan or other lending institution over the life of the loan. Both are issued at the time of purchase for a one-time premium.
Why do you need both policies? No preliminary title search, no matter how complete, can predict when a long-lost relative or heir will turn up or whether paperwork buried for years under a misspelled name will reveal a claim concerning the property.
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The lender's policy will kick in to defend such claims and, if all goes well, might resolve the matter against whoever brought it up. But what if the court decides that the long-lost relative is in fact the house's true owner? The lender's policy will reimburse the lender for what you owe on the mortgage.
But you will be out the amount of your down payment and other principal payments, not to mention that you'll no longer own the house. The owner's policy will cover your financial losses (though you might still have to move out of the house).
Extensive Search of Public Records
Before issuing a policy, the title company performs an extensive search of relevant public records to determine if anyone other than you has an interest in the property. The search may be performed by title company personnel using either public records or more likely, information gathered, reorganized and indexed in the company’s title plant.
Any title problems usually can be found and cleared up prior to your purchase of the property. Once a title policy is issued, if for some reason any claim which is covered under your title policy is ever filed against your property, the title company will pay the legal fee involved in defense of your rights, as well as any covered loss arising from a valid claim.
Eliminate Risks & Prevent Losses
Most forms of insurance assume risks by providing financial protection through a pooling of risks for losses arising from an unforeseen event, say a fire, theft or accident. However, the purpose of title insurance is to eliminate risks and prevent losses caused by defects in title that happened in the past. And risks are examined and mitigated before property changes hands.
This risk elimination has benefits to both the homebuyer and the title company, and minimizes the chances adverse claims might be raised - and by so doing, reduces the number of claims that have to be defended or satisfied, which keeps costs down for the title company and keeps your title premiums low.
Even though the chance of calling on the title insurance for coverage is relatively low, the value on what you stand to lose if you go without coverage is high. You could, in fact, lose the house itself.
Home Buyer Tips & Related Articles
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- Hot, Normal, and Cold Markets
- Importance of Inspection
- Your Credit Score Matters
- Buying a Foreclosure
- Why Hire a Buyer's Agent?
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