It is important to note that there are two types of title insurance: a lender’s title policy and an owner’s title policy. When getting a mortgage, a lenders policy is required, and an owner’s policy is optional.
Lender’s Title Insurance: Lender’s title insurance is meant to protect the mortgage lender if there’s an issue down the line with the title that causes you to have a dispute with the property. Mortgage companies require this because the insurance policy will cover the loan amount if something does go wrong with the property. Lender’s insurance does not protect against existing equity you have in your home.
Owner’s Title Policy: Unlike Lender’s Title Insurance, Owner’s Title Policy does provide you with protection for the equity built up in your home. There is a slight chance that someone could make a claim to your property and succeed in showing that the seller who transferred the property didn’t have the authority to do so. The insurance is designed to provide you with the money to buy a house of equal value of your current home. It’s not ideal, but it does happen in some instances. This is why the title insurance company works so hard to do a complete title search and property survey.
Title Companies are set in place to help protect the rights of each party involved in a real estate transaction. The role of a title company is to make sure that the title of the real estate is legitimately given to the home buyer. The end goal is to make sure that the seller has 100% the authority to sell the property. After verification, and once there are no encumbrances in the property, the title company will provide you with insurance that will protect you in the event should someone come along to make a claim on the property in the future.
The title company also may be responsible for conducting the closing and maintaining escrow accounts.
Perform a Title Search: A title search is where the title company looks for potential obstacles that wouldn’t allow the transfer of the property.
Conduct a Property Survey: If required, the title company will order a survey of the property. This is to discover any possible encroachments; like a neighbor building on your property.
Prepare Abstract of Title: An abstract of title is a legal document that outlines the ownership history, when the property was sold, records of inheritance, court litigations, and tax sales.
Prepare Title Opinion: This document states that the title company thinks the seller has a valid title to the property and they feel comfortable insuring the title.