Title Insurance, A Prerequisite for Future Homeowners

11 May Title Insurance, A Prerequisite for Future Homeowners

Since title insurance is a requirement for homebuyers in Illinois, both buyers and sellers can become confused about how it provides protection. While the chance of using the insurance coverage is small, the value of what the potential buyer could lose in the event that there are homeowner claims or issues is very large.

What is title insurance?
Title insurance protects current and future owners, as well as issuers of mortgage loans from problems that are uncovered in the transfer of property. Each piece of real estate is given a permanent index number, also referred to as a PIN. When ownership of a property is conveyed, or a mortgage is issued, the transaction is recorded with the county’s recorder of deeds under that property’s PIN. Recording the transaction places everyone on notice and it remains in the public records for that PIN. An attorney will perform a “title search” for the PIN affecting the real estate in question and sort through property records for any potential problems (e.g. clerical errors, liens, forgeries, wild deeds,etc).

Why do I need title insurance?
Title insurance protects the homebuyer and the buyer’s lender from the possibility that the seller does not have clear ownership or rights to the home. Uncovering problems such as these in past records can be difficult even for the most skilled title insurance employee. That is why title insurance companies are underwritten. Underwriters will review any potential problems and issue an insurance policy to protect both the buyer and lender. Should there be a challenge to the title, the underwriter will provide compensation for lost equity.

What type of title insurance do I need?
There are two types of title insurance policies: a loan policy and an owner’s policy. Lenders require individuals who take out a mortgage to cover the amount of the loan on the property. This protects the lender’s interest in the property until the loan is paid back. An owner’s policy insures the buyer’s rights to the property and protects against a number of contingencies. Paying the title insurance fee provides coverage for as long as the buyer owns the home. If requested, extended policies and coverage can be issued to protect against title issues that may arise after the policy date. However, it will boost insurance costs.

In most cases, the real estate agent or attorney will choose a title insurer for the buyer. Although title insurance is a standard process, consulting with a trusted attorney will help avoid costly complications.