Title insurance is an insurance policy that covers you if title problems come up after you buy or refinance a property. Possible complications include lost, forged or incorrectly filed deeds, property access issues and liens on a property.
We at the Kansas Insurance Department (KID) and our colleagues at the National Association of Insurance Commissioners (NAIC) offer you the following information on ways to protect your investment from potential title defects or liens.
For example, if there is an unpaid mortgage on the property you just bought, you may be held responsible. Without title insurance, you might have to pay legal costs to settle a dispute. If you lose a dispute, it could cost you money, the equity you have in your home and perhaps even ownership. Title insurance is designed to cover associated legal costs to settle the dispute and/or to resolve the problem.
When purchasing real estate, your lender will likely require title insurance. The coverage allows the lender to sell the mortgage to their investors and keep more money available for other loans. If you are considering title insurance, you might have the following questions.
Where can I buy title insurance?
You can buy title insurance directly from a title insurance company or a title agent who sells title insurance for a company. Licensed title insurance companies, agencies and agents can sell title insurance.
What are my rights when buying title insurance?
You have the right to purchase title insurance and settlement services from any company or agent, not just the agent suggested by your real estate agent or lender. You’ll need to know the cost of the house to make price comparisons on title services.
You can search for licensed title companies and make a list of questions to ask title insurers prior to signing a contract. Be sure to ask what services and fees are included in the title premium and closing services, as well as any fees charged separately. Ask whether discounts apply.
Some title insurers may be affiliated with lenders, real estate companies, developers or home builders. Ask the person making the referral if his/her company is affiliated with the recommended title insurer. Federal law requires affiliated relationships be disclosed in writing.
Types of policies
There are two types of title insurance policies: owner’s and lender’s. An owner’s policy protects you for the cost of your home plus legal costs if a title or ownership issue arises after you buy your home. This type of policy is issued for the amount you paid for your home, and will cover you as long as you own an interest in the property. You are not required to purchase an owner’s policy.
If an owner’s policy doesn’t cover a specific issue, often you can add specific coverage, known as a policy endorsement. For example, if you’re buying a new home and the owner’s policy doesn’t cover claims (often known as a mechanic’s lien) filed by a contractor, you can add a policy endorsement to ensure you are covered if the prior owner failed to fully compensate the contractor. Some endorsements are free while others cost an additional fee.
If you borrow money to buy your home or property, your lender is likely to require you to buy a lender’s policy. A lender’s policy only protects the lender if a title or ownership problem comes up after the property is purchased. A lender’s policy is issued for the amount of the mortgage, and the coverage decreases as you pay down your loan. Unlike an owner’s policy, the lender’s policy ends when you pay off your mortgage. You may be expected to pay the premium for this type of coverage.
Because a lender’s policy only protects the lender from title problems, you may want to consider an owner’s policy to protect your interests.
For more information about title insurance, or if you believe you have been treated unfairly, contact KID’s Consumer Assistance Division at 800-432-2484.
Source: Kansas Insurance Department