Have questions about Insurance? We’re here to answer them. Take a look below to see some common questions…
What is a title defect or encumbrance?
A “title defect” is something missing from the title – for example, an undisclosed heir from a previous owner who could make a claim on the land. An “encumbrance” is a claim made upon the land but not by the landowner; for instance, your local power company may have an easement for a power line that will serve your home. In this case, your property is “encumbered” by the power company’s easement rights.
What is title insurance?
Title insurance is an insurance policy that protects owners and lenders against future loss caused by a title condition (i.e., a title defect) that existed when the policy was issued. In its basic form, title insurance is unlike other types of insurance because title insurance protects against “past acts,” while other forms of liability insurance – auto or homeowner’s coverage, for example – protects against the occurrence of “future acts” or “future occurrences of loss.”
What does title insurance protect against?
To name a few:
- Mistakes in recording of legal documents
- Forged deeds, releases, or wills
- Undisclosed or missing heirs, including spouses
- Deeds by persons of unsound mind
- Deeds by minors
- Deeds executed under invalid or expired power of attorney
- Liens for unpaid taxes
What are the two types of title insurance policies?
- Lenders policy, also called a loan policy, financially covers the amount of a loan and provides protection to the lender. In its basic form, lender’s insurance is “lien insurance” – i.e., the title company provides protection to a lender in the event that its mortgage lien is deemed to be subordinate to another lien claimant. The lender’s policy of title insurance lasts until the mortgage is paid in full.
- An owner’s policy, the landowner is protected against losses attributable to title issues that existed (or were created) prior to the owner being vested with title to the insured property. Title insurance does not insure the owner against title issues caused by the owner, or issues that the owner knew about before taking title to the property. An owner’s policy of title insurance lasts for as long as the insured owner retains an interest in the property.
Is title insurance as important as homeowner’s insurance?
Absolutely. Homeowner’s insurance typically provides protection against theft, accidental damage or natural disaster such as a tornado, earthquake or hurricane. While these types of loss can certainly be substantial, losses from a defective title could be devastating. If a fire destroys your home, you can rebuild and buy new possessions. If the title to the land fails, you could lose the right to inhabit your home as well as the land it occupies.