About Title Insurance
Mortgage lenders require their customers to get title insurance. The companies also require that you pay for a title search. A title search is an extensive search through legal documents to prove the person selling you the property has legal claim to do it. So why have title insurance in addition to a title search? The search may have an error, or it may have come across forged documents, which would pass the title search. Around six percent of all policies have a claim, so it is not as uncommon as some may think.
You will have to have title insurance even if you refinance your mortgage. The mortgage lender is insuring against a lien on the property. A lien is a legal claim against a property. It can happen because of unpaid debts or legal judgment. If you borrow against your home or if you don’t pay taxes, you will have a lien on your property. The title insurance will pay the mortgage company the balance of the principal owed them over the life of a mortgage. If you purchase a home valued at $100,000 and put down ten percent, then your title insurance will protect the amount owed the bank is insured against only the remaining amount you owe. This means the insurance covers a depreciating amount over time. Many policies also protect the homeowner’s equity investment. Of that $100,000 home you put down $20,000 in equity as a down payment, you are covered for that amount which increases year after year until the principal is paid off to the bank. You must check individual policies to see if they cover both the bank and yourself. Many times covering your interest is optional but costs only a few dollars more.