Title Insurance Explained

Title insurance is an essential part of virtually every transfer of ownership and refinancing of residential real property. Nevertheless, many individuals do not understand why it is necessary, who it protects and what it costs. This overview provides the answers to those questions.

Why Title Insurance Is Needed

Unlike most insurance which protects against the risk of future events, title insurance exists to eliminate losses due to defects in title which occur as a result of things that happened in the past. Even the most careful title search will not reveal some situations or events that could cast doubt on your title to the property. Some of these are: mistakes in the public record; fraud or forged title instruments; undisclosed heirs; adverse possession and other undisclosed prescriptive rights, et al. The title examiner is not liable for such things that are not of record, but a title insurance policy will financially protect the insured party by paying its legal defense fees and monetary claims.

Who Does Title Insurance Protect

Both the Lender and the Owner have an interest in the Owner's clear title to the property and separate title insurance policies are available to protect their respective interests. Generally, if the purchaser is financing any portion of the purchase price, a commercial lender will require that a Lender's Title Insurance Policy be issued to insure the lender to the maximum amount of the loan. Though this policy protects the Lender, it is the Owner who will pay the premium at settlement as one of the costs of obtaining the loan.

For the property owner to be protected, the owner must elect to purchase a separate Owner's Title Insurance Policy which protects the owner up to the face value of the policy (typically the purchase price). While a purchaser is not required to buy an Owner's Title Policy, it is highly recommended that the purchaser do so for a home is usually an individual's largest investment and it would be ill-advised to leave one's equity in such an important asset unprotected against legal challenge. For the cost of a one-time premium payable at the time of settlement, named Owners are covered for the rest of their lives, i.e. even after they have sold the property. In recent years, property owners have been able to purchase enhanced title insurance policies which further protect them by increasing the policy limits over time in recognition of fast rising values as well as insuring owners against some post-policy events (e.g. zoning & building permit violations, encroachments, adverse possession, transfers into a trust) et al.

What Does Title Insurance Cost

The premium for a Standard Lender's Title Insurance Policy is based on the loan amount at the rate of $2.90/$1,000 for the first $100,000 and $2.40/$1,000 up to $500,000 and $2.00/$1,000 thereafter, plus a $95 Binder fee. If an Owner's Title Insurance Policy is purchased, the Lender's Title Insurance premium will be reduced to $100, as it is a simultaneous issue.

The premium for a Standard Owner's Title Insurance Policy, is based on the purchase price at the rate of $3.90/$1,000 for the first $100,000 and $3.40/$1,000 up to $500,000 and $3.00/$1,000 thereafter, plus a $95 Binder Fee. (The premium for an Enhanced Owner's Title Insurance Policy is 20% higher) If a second Lender's Policy is required, an additional $100 simultaneous issue fee and a $95 Binder Fee will be applied, and is subject to change.

Since January 2000, unless Purchasers request standard title insurance, Key Title has been issuing enhanced title insurance policies since they are more inclusive. Specific premium costs for any of the foregoing policies are easily calculated upon request.