Title Insurance? What's that?

A title insurance policy protects a real estate owner and/or lender against loss or damage they might experience because of liens, encumbrances or defects in the title to property, or the incorrectness of the related search. (Inaccurate information being linked to the property before the title policy is issued) Car, life and health insurers assume risk for future events, collecting continuing premiums for the service. A title policy is the only form of insurance that protects against past events and is issued for a one-time premium paid at close of escrow.

Buyers and lenders need title insurance to know that the property they are involved with is insured against various title defects, such as another person claiming an ownership interest, improperly recorded documents, fraud, forgery, liens, encroachments, easements and other items that are mentioned in the actual policy. Whether it is a sale, refinance, construction loan, etc., the seller, buyer and lender all benefit from title insurance.

Once a property goes into escrow a title policy is created after the lender or escrow company opens a title order with a title company. The title company then makes a comprehensive search including public records of the county recorder, federal and state agencies, and county and city offices. A preliminary title report is issued to the Realtors, buyers, sellers and lenders for review and approval.

The preliminary title report is part of the buyer's mandatory inspection of the property made during their due diligence period negotiated in the purchase contract. The buyer and lender must be happy with what will remain recorded against the property after close of escrow, such as taxes, new mortgages, burdening and beneficial easements before escrow can close. Once escrow closes, the actual title policy is typed and sent to the new owner and the lender.