Title Insurance Versus Title Search and What Every Buyer Should Know

Knowledge of title insurance and title search becomes crucial when buying property. Both of them hold an equally important role in the safe transaction of real estate, but they cater to different situations. This blog explores the differences between title insurance and title search; it delves into what both terms mean, explaining their importance for each buyer.

What is a Title Search?

A title search is an elaborate review of public records on a specific property. It is conducted to validate who legally owns the property while identifying any claims or liens or possibly other issues that would affect the transfer of that ownership. A title search is that part of the home buying process that brings up various complications, if any, in the deal.

Interesting Aspects of a Title Search:

• Ownership Verification: The title search determines that the seller has the legal right to pass on that title to the buyer.
• Liens and Encumbrances: This identifies any liens that can sell the property such as mortgages, unpaid taxes, or judgments.
• Easements and Restrictions: The search reveals the easements, or rights of ways, that will affect the use of the property.
• Historical Records: It will examine the chain of title that ensures there is a clear ownership history of the property with no gaps or discrepancies.

What is Title Insurance?

Title insurance refers to indemnity insurance that covers the loss of property owners and lenders due to defects within the title. Most insurance policies cover future events, while title insurance covers matters that have already occurred but were discovered later after purchase.

Types of Title Insurance:

• The owner’s Policy protects the buyer from title defects arising after the purchase. It covers the property’s full purchase price and stays in effect as long as the buyer owns it.
• Lender’s Policy: The lender’s Policy protects the lender’s interest in the property. It covers just that loan amount and decreases as the mortgage is paid. Lenders usually require it as a condition to close the loan.

Key Aspects of Title Insurance:

• Financial Protection: Title insurance protects financial loss due to defects in the title. That includes legal fees for defending claims against the title.
• Legal Defense: In the event of a claim against the title, the insurance company offers legal defense so the buyer is not saddled with legal expenses.

Title insurance requires a one-time premium paid at closing with lifetime coverage that does not need to be renewed.

Title Search vs. Title Insurance

Title search and title insurance are both integral elements of a real estate transaction, but they play very different roles:

Purpose:

• Title Search: Aims to uncover existing issues with the title before the transaction is completed.
• Title Insurance: Protects against issues discovered after the transaction is completed.

Timing:

• Title Search: Conducted before closing to ensure the title is clear and to facilitate a smooth transfer of ownership.
• Title Insurance: Purchased at closing and provides ongoing protection for the buyer and lender.

Scope:

• Title Search: Limited to identifying known issues based on public records.
• Title Insurance: Provides broader protection, including unknown issues not discovered during the title search.

Nature of Protection:

• Title Search: Preventive measure that seeks to address issues before they arise.
• Title Insurance: Reactive measures that provide financial and legal protection in case issues arise later.

Why Both Are Necessary for Buyers?

For a safe real estate transaction, title search and insurance are required. Here’s why:

Title Search:

• Due Diligence: Title search is one of the buyer’s due diligence processes, ensuring no surprises can complicate the purchase.
• Issue Resolution: Issues found early on can be addressed and resolved before closing, preventing delays or legal disputes.

Title Insurance:

• Peace of Mind: A few issues may remain buried even after a thorough title search. Title insurance gives one peace of mind, knowing one is protected against unexpected claims.
• Financial Security: Should a title dispute, title insurance covers one’s legal costs and other economic losses, thereby protecting investment.

Understanding the differences between title search and insurance is essential for every homebuyer. A title search will ensure the property’s clear title at the time of purchase, while title insurance protects the party after the transaction from any prospective latent title defects. It is an integrated protection mechanism, assuring the seller of an uncomplicated transaction. Working with a reputable title company or attorney can help you understand the intricacies of title search and title insurance and make the process less daunting, securing your investment and new home.