Does Title Insurance Expire?
Article copied from: Courthouse Direct.
If you're in the process of closing on a new home or looking to make an offer in the near future, you've probably heard a few things about title insurance. Although title insurance is nearly as common as regular homeowners insurance, it's the source of a wide range of misunderstandings. Before you agree to take out a specific title insurance policy, take a moment to review some of the most common attributes of this important form of financial protection.
Title Insurance Review
Title insurance is less complicated than it seems. A title insurance policy is designed to protect against financial losses related to the emergence of competing ownership claims, liens or other title-related defects. There are two basic types of title insurance. Whereas owner's insurance protects a prospective home-buyer from defects or claims that could ultimately derail the closing process, lender's title insurance protects banks and lending agencies that have made financial commitments to the closing of a given piece of property. An owner's insurance policy may be open-ended or indefinite. A lender's policy typically expires with the final payment on the mortgage that it covers.
Common Defects and Coverages
Whether it's structured as an owner's policy or a lender's policy, a typical title insurance policy should cover most common defects and claims. These might include:
- Fraudulent or forged title documents
- Improperly indexed, cataloged or recorded title documents
- "Missing" heirs who come forward during or after a property's sale
- Back taxes, judgments and other liens
- Financing problems that impede closing
- Withdrawal from or termination of the closing process by the lender or buyer
Although it might seem redundant, prospective home-buyers are encouraged to commit to both types of title insurance policies. This "double coverage" ensures that all parties to a given real estate transaction enjoy comprehensive financial protection and peace of mind.
Payment and Negotiation
In general, prospective home-buyers who agree to purchase owner's and lender's policies as a package deal are entitled to a significant discount. In addition, some lenders may agree to subtract the value of one or both policies from the final closing costs or use some other financial incentives to encourage buyers to obtain title insurance. Buyers are free to negotiate these terms and other title insurance-related issues with their lenders.
When Does Title Insurance Expire?
The vast majority of owner's policies remain in force on an indefinite basis. Homeowners who carry such policies enjoy open-ended protection for the duration of their tenure and may also be sheltered from retroactive claims that arise after they've moved on. Owner's policies may also shield their holders' heirs from retroactive claims. Meanwhile, lender's policies last until the satisfaction of the insured organization's interest in the covered property.
Title insurance's open-ended nature is crucial to the orderly functioning of the entire real estate industry. Since competing ownership claims and previously overlooked defects can arise years after closing, title insurance provides homeowners and their lenders with much-needed assurances that they won't be held liable for such problems at any point in the future. Common "after the fact" defects that arise from indexing or cataloging mistakes are especially common.
Legal Protections and Common Customs
Although the legal protections that prospective home-buyers enjoy are too numerous to name in a single primer, many of the most important protections apply to holders of title insurance. Home-seekers are under no obligation to use title insurance providers that have been recommended by their lenders, real estate brokers or attorneys. Moreover, real banks and real estate professionals are prohibited from receiving kickbacks or commissions from title insurance providers. Prospective home-buyers who believe that they've been charged unreasonable fees or given misleading information may lodge formal complaints with state and federal housing authorities.
With its straightforward structure, robust legal protections and open-ended term length, title insurance is a crucial instrument that protects countless lenders and home-buyers each year. Whether you aim to purchase your first-ever property or make a career out of buying and selling land, don't neglect this money-saving form of financial protection.
