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Title is a collective term for all your legal rights to own, use and dispose of land, including all previous ownership, uses and transfers. To legally transfer real estate property, a title search must be performed and, in most cases, the title must be found free of any circumstances that could endanger your right of ownership. Title insurance protects against the possibility of future loss should your legal rights to your property be challenged.
There are two types of title insurance: a lender’s policy and an owner’s policy. The lender’s policy protects the lender’s interest in the property for the amount of the mortgage loan. An owner’s policy protects the homebuyer for the full property value. While a lender’s policy is often required to grant a mortgage loan, an owner’s policy is usually optional.
An owner’s policy protects your interest in the property against hidden hazards such as:
For a one-time premium paid during the closing process, the title insurer assumes responsibilities for all legal expenses to defend the title to your property if it’s ever challenged. If the defense is unsuccessful, you’re reimbursed for any reduction in the value of the land. For you, it’s a win-win proposition.
It’s a detailed examination of all available public records on a property to verify the seller’s’ right to transfer ownership and to uncover any potential challenges you might face.
A title search should reveal such things as unpaid taxes, unsatisfied mortgages, judgements against the seller and restrictions limiting the use of land. However, even this most diligent search may fail to reveal some hidden hazards, such as those mentioned earlier. That’s where the title insurance comes in.
A lender’s policy lasts until the mortgage is paid in full. An owner’s policy remains in force as long as you or your heirs have an interest in the property. If challenges to title arise after the property has passed to your heirs, the title insurance company would defend the title for them just as it would for you.