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Common Misunderstanding about Title Insurance

By Takara Alexis

Title insurance comes in two typical forms: Owner's title insurance and lender's title insurance. Owner's title insurance is issued for a one-time fee, when the property is purchased. Owner's title insurance lasts as long as you or your heirs have ownership in the property. The reasoning behind the purchase of owner's title insurance is that the owner will be protected should title issues arise, that might have not been figured out in the original title search. Under these policies, any future legal fees that may come to fruition are covered.

Extended owner's coverage, as the name implies, allows additional title insurance coverage. An extended title insurance policy will often protect against such additional defects as building encroachment, property tax liens, subdivision violations, and more. This self-protecting form of title insurance can cost you an additional 30 to 50 percent over a normal policy. It might seem pricey, but extended coverage is often the sensible way to go, especially when legal issues may be a concern, such as a builder bankruptcy.

Lenders title insurance, which is also referred to as a Loan Policy, is required by your lender when financing a home. Should a problem with the title emerge, the lender is protected. You pay up front and it lasts until the mortgage is paid off. Similar to private mortgage insurance, lenders title insurance is created to protect the lender, and not necessarily you.

Title insurance is bought with a one-time premium due upon close of escrow. Who will pay for the home title insurance policy is determined by your county. In some cases the buyer will pay while in others the seller pays. Sellers and buyers often split the cost within a buyer's policy. Whereas, the lender's policy is most often paid by the buyer. According to, the U.S. average title insurance cost amounts to $663.

The high level of referral fees prevalent within the industry has had its share of disputes over recent years. The typical consumer really has no idea where to look when searching for a title insurance agent, so it's natural for lenders, brokers and the like to introduce these relationships. These introductory referral fees are illegal, according to the Real Estate Settlements and Procedures Act (RESPA), but due to regulatory difficulties such relationships are still ubiquitous in today's market. A good answer to this problem would be to demand lenders to purchase their own title insurance policies, as they're the ones that are really being insured. Though, it's probably not likely. If you are looking for the best title insurance rate it might be worthwhile to search out a competitive title insurance quote, though some states actually set the title insurance rates, so you'll want to check with your specific state.

A common misunderstanding is that new homeowners don't need real estate title insurance. This isn't true, as they may be the first owners of the home, they aren't likely the first owners of the property. The property may still have defective title or liens from previous ownership, which could cause problems. In addition, there is the chance that the builder has liens against him and the property, due to an unsatisfied subcontractor, or the like. Home property title insurance protects in these circumstances as well.

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