Understanding Title Insurance

The law firm examines the records at the courthouse as they pertain to the property being purchased and used as collateral.

• There are many things that cannot be detected by a title search.
• If the clerk in the record room indexes a lien or deed improperly, the examiner will not find it.
• The examiner cannot detect fraud or forgery just by looking at a copy of a document in the back chain.
• Missing heirs have been known to show up and make claims on entire subdivisions.
• Because of the risk involved, a lender will not make a loan with real estate as collateral without requiring a title insurance policy for the lender's protection.

The Lender's policy offers no protection to the owner/borrower.

• This is true no matter the percentage of loan to value.
• When the owner/borrower has lost the property, the title insurance company pays the lender for the outstanding indebtedness. This makes the lender "whole" and the title insurance company becomes the new note holder.
• The settlement of loss to the lender and the full release from the lender did not protect the borrower and/or any guarantor from liability on the note.
• The borrower is making the payments of principal and interest to the title insurance company rather than to the lender.
• Therefore, there is no protection for the owner on the lender's policy.

An Owner's policy is a great deal of protection.

• It furnishes and pays for attorneys to fight a claim pays a claim that is legitimate.
• If the property is actually taken from the owner, the title insurance reimburses equity in the property (the amount determined by the type and face amount of the policy) to the owner and releases the owner from the liability under the note
• This makes the owner "whole" and puts them back where they were at the closing.

 
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