Title insurance protects the insured
from claims regarding ownership of the property, liens against the property,
and marketability of title to the property. Title insurance companies offer two
types of policies; the mortgagee policy protects the lender, and the owner's
policy protects the buyer.
According to the mortgagee policy, when
a claim results in a total loss of title, the title insurance company buys the
existing mortgage loan from the lender. This lender is, therefore, compensated
for its loss, and the title insurance company, in turn, becomes the new holder
of the loan. The mortgagee policy protects only the lender and does not afford
any protection to the buyer. An uninsured buyer would still be responsible for
repaying the mortgage to the title insurance company, despite the fact that he
no longer actually owns the property. The uninsured buyer would also lose any
equity he may have in the house.
A buyer must obtain an owner's policy
of title insurance in order to be protected in the event of a title claim. The
owner's policy insures the buyer against loss resulting from a title claim and
typically includes reimbursement to the buyer for court costs and attorney fees
associated with the claim. Title insurance is a one-time premium, and the
policy is written by the closing attorney or settlement agent. Title insurance
is typically a line-item charge on the settlement statement.
Morris|Schneider|Wittstadt and LandCastle Title strongly recommend that every
buyer purchases an owner's policy of title insurance.