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What is Title Insurance?

The title insurance industry has been protecting the American dream of homeownership for more than 125 years. The objective of title insurance remains virtually the same today as it did when the first title insurance company was established in the late 1800’s. Title insurance helps the parties in a real estate transaction determine their rights and interests and assures that those rights and interests are transferred correctly and in their entirety from party to party. Simply put, protecting the parties involved in real estate transactions is the reason the title insurance product was developed.

The traditional title insurance policy differs from other forms of insurance in that it provides insurance as of the effective date of the policy forward for risks which existed prior to said effective date. Thus, the traditional policy does not insure against prospective risks which could arise in the future. Instead it serves to identify and eliminate such risks prior to the insured’s investment of money in the transaction.

This type of backwards-looking coverage differs from other forms of insurance which protect against future events which have yet to happen. The companies providing those forms of insurance can assess risk internally by basing their risk analyses on actuarial studies and past events. In addition, the premiums on those policies are paid periodically and coverage lapses at the end of the period, whereas the title insurance premium is a one-time payment for coverage which continues indefinitely while the insured retains an interest in the subject property.

Below are answers to some commonly asked questions regarding title insurance which we hope will assist you in determining your title insurance needs. If you have any questions that are not answered below, please contact us.

What is title insurance?
Title insurance protects against loss or damage resulting from defects that affect the title to your home or place of business.

Why is title insurance important?
Title insurance protects the investment you’ve made in your home or place of business. When you buy property, the previous owner conveys title to you to evidence your full legal ownership. Occasionally, a hidden defect in the title or a mistake in a prior deed, will or mortgage may give someone else a legal claim against your property. If a claim is made against your property, title insurance can save you time and money by:

  • Providing a corporate guarantee against insured defects;
  • Paying all legal expenses to eliminate any title defects;
  • Paying any claim arising from errors in title examination and recording; and
  • Paying any loss arising from hidden defects in title and defects not of record.

Your title insurance protection is a permanent assurance that your ownership and use will be defended promptly against claims, at no cost to you, whether or not the claim is valid.

What is a title defect?
A title defect is one of any number of things that could jeopardize your interest. It could be an unsatisfied mortgage, lien, judgment or other unrecorded claim against the property. It could arise through easements, use restrictions or other existing covenants, or it could be a hidden risk.

What types of hidden risks does title insurance protect against?
Title insurance generally protects you against four kinds of hidden risks:

  1. Errors in the public records such as incorrect information in deeds and mortgages regarding names, signatures and legal descriptions;
  2. Judgments, liens and mortgages or any other claims against the property or the seller which become the new owner’s responsibility after closing, such as unpaid taxes, assessments and other debts to creditors;
  3. Claims to ownership by the spouse of a former owner or by the “missing heir” of a deceased owner who did not receive his share of the estate; and
  4. Invalid deeds or other transfers by sellers who did not actually own the property or by previous owners who were minors or not mentally competent.

What risks are not protected by title insurance?
Both the standard owner’s policy and the standard lender’s policy are based on an examination of public records of the recording district in which the land is located. Neither policy insures against matters that could be disclosed by actual inspection or survey of the property. These policies do not insure against certain matters not shown by the public records such as unrecorded easements, liens or money obligations, unrecorded utility rights of way, public or private roads, community driveways and other types of encumbrances, or against the rights or claims of persons in possession of the property which are not shown by the public records.

Can protection be obtained against matters not of record?
Upon request, the title insurance company may agree to cover matters that are disclosed by a physical inspection or a survey of the property, subject to any exceptions that the inspection determines to be proper. Due to the additional risk involved, a higher premium may be charged for this type of coverage. This type of coverage is called “extended coverage.”

Who does title insurance protect?
There are two basic types of title insurance policies – one for the mortgage lender and one for the real estate owner. If a mortgage is to be placed on your new home or business, the lender will probably require you to purchase title insurance to protect its position as a holder of a mortgage loan, but this lender’s title insurance policy doesn’t protect the real estate owner. You need to purchase an owner’s title insurance policy to protect your investment.

How much does title insurance cost?
You pay a one-time premium for coverage that lasts as long as you or your heirs own your property, or as long as you may be liable for any title warranties you make. Owners title insurance is one of the least expensive forms of insurance. In many cases the owner’s title insurance policy can be purchased at a reduced rate when a lender’s policy is also purchased. Our Rate Calculator can assist in determining the cost of Title Insurance.

When is the title insurance policy issued?
The owner’s title insurance policy usually is issued after the deed to the buyer is delivered and recorded. The lender’s title insurance policy is usually issued after the mortgage or deed of trust has been properly executed and recorded.

What is a title search?
A title search is a detailed examination of the public records concerning the property, including deeds, civil and probate court records, judgment indexes and tax records. The purpose of a title search is to determine the seller’s right to transfer ownership and to discover any claims, errors, assessments, mortgages or other burdens or restrictions on the property.

What happens if a claim is made against my title?
If a claim is made against your title, you should notify the title insurance company immediately, in writing, and include copies of all related letters and documents. The title insurance company will either pay the claim against your title, negotiate with the other party to settle the claim or defend a court case related to the title. The company will pay all legal costs incurred in defending your title.

What should I look for in selecting a title insurance company?
You should select a company that has a sound reputation for paying claims, experience in all phases of title insurance, and efficient and dependable service to policy holders. Central Alabama Title Center, LLC and its underwriter have an outstanding record in all of these areas, and can also offer you many other superior services.

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