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Title insurance, a primarily American product, provides indemnity to lenders and homeowners against defects or issues with the title of a property. When you purchase a property by securing a mortgage, your lender will require you to purchase a policy of title insurance to protect the lender’s interests in the property. However, if you are paying for a property in cash, this policy will not be applicable to your transaction. That said, you still have the option to purchase title insurance for yourself.
A loan policy of title insurance exists to protect and financially indemnify a mortgage lender against covered title defects on the mortgaged property. Often, borrowers purchase both a loan and owner’s policy of title insurance at the close of their transaction. However, in a cash transaction, there is no lender involved, and thus there is no reason for a loan policy.
Many property owners opt to purchase title insurance to protect their own investment in the real estate. Although an owner’s policy is an optional purchase, it can be a good option to help protect your ownership rights. You will pay for the owner’s policy at the close of your transaction, and that coverage will last for as long as you or your heirs own the property.
Search and Exam
One benefit of purchasing an owner’s policy of title insurance is the search and examination the title insurance company will conduct prior to issuing a policy. When you order title insurance, a title agent or officer will conduct a search of public records to determine the state of the property’s title. Often, these professionals find defects or “clouds” in the title and work to remedy them. If the cloud is very serious or cannot be remedied, the title company will alert you to the issue. You can then determine whether to proceed with the transaction.
Types of Title Issues
Although you will not be required to purchase a loan policy on a cash transaction, it’s a good idea to purchase an owner’s policy. This title insurance policy can financially protect you from any prior liens on the property, encumbrances that might restrict your use of the property -- such as a sewer or water line, or forgeries and errors in public records. For instance, there could be a missing heir to a former owner of the property, or a deed that was forged and now requires remediation, which can be costly. Ordering an owner’s policy of title insurance can help you not only discover these issues, but will also protect you against any undiscovered issues that could arise in the future.
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