When asked to name the most important type of real estate insurance, many homeowners confidently and without hesitation answer “homeowners insurance.” After all, homeowners insurance policies protect against potentially huge financial losses due to damage from fire, water, wind, vandalism, and a host of other perils. What could be more important? Well, for starters, making sure the property covered by that homeowners insurance policy actually belongs to its purported owner.
That’s what title insurance, a special form of real estate indemnity, is for. When a given piece of residential or commercial real estate changes hands, a title policy ensures that the property isn’t encumbered by past liens or other problems – such as a forged title and ineligible or incompetent parties to a previous deed – that could affect the transfer’s legality or result in future financial costs.
In most cases, lenders and buyers purchase separate title insurance policies, each protecting their respective interests in the property. The buyer generally pays the full cost of both policies, though it’s often possible to work out a cost-sharing arrangement with the seller (or convince the seller to shoulder the entire financial burden) in a buyer’s market. Title insurance is typically included as a closing cost in a real estate transaction.
Although title insurance exists in most industrialized countries, it’s far more common in the United States than in others. This is largely due to the fact that local governments play a smaller role in determining the legality of property transfers and ownership here than almost anywhere else in the world.
In most other countries, particularly those influenced by British common law, new property owners register the recently transferred title to their land with the applicable local government, which then acts as the final arbiter of any disputes that arise as a result of the transaction. By contrast, most U.S. jurisdictions simply record each property transfer without conclusively determining whether it is valid or whether the property is free from liens and other encumbrances. That determination falls to private specialists, including title insurance company employees.
Read Full Article here, from www.moneycrashers.com. Article written by Brian Martucci.