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Educating Your Consumer About Title Insurance

posted Feb 5, 2018, 12:43 PM by Kim Whitlock   [ updated Mar 6, 2018, 7:36 AM ]

Title insurance is not homeowner’s insurance. Title insurance is about "risk elimination" of title problems arising from past events and not "risk assumption" of future events.

Before offering to issue a title insurance policy, a title company will do a title search to learn whether there are any problems or limitations with the title. This search is done in an effort to minimize the risks of offering insurance. By minimizing the risks of claims being made, a title insurance company is able to offer its insurance policies for a relatively low, one-time fee.

According to the American Land Title Association, 25% of properties have a title defect that requires clearing and curing title prior to closing and, in most cases, this work is performed and cured without the parties to the transaction ever knowing about it. Problems such as deeds, wills, and/or trusts that contain improper vesting and incorrect names, outstanding mortgages, judgements, and tax liens, easements, or incorrect notary acknowledgments are generally found through the title search and usually can be cleared up before the closing on the property.

The cost for this work is paid with title insurance premiums; both to the title agent in the form of commissions and to third-party service providers for reviewing and clearing title. Title insurance premiums also pay for the cost of maintaining accuracy of title plants and other title records.

So, in addition to paying out claims for human error or fraud by a seller or prior homeowner, the title insurance premium also covers work performed for eliminating the risk of a title defect.

Before the advent of title insurance, homebuyers hired and paid attorneys to review title, cure title, and issue an attorney’s opinion title. If the attorney erred, the homeowner could make a claim against the attorney – assuming the attorney had not since been disbarred for malpractice.