For a seller, it is important to prove that they own the property and that there are no liens against it, other than the mortgage. This is done by showing clear title to the buyer. The title to the property can be insured as marketable and the buyer is made aware of title issues that might need to be resolved prior to closing. This is why it is beneficial for the seller to order a “Preliminary Title Commitment.” Upon listing their property, one of the first steps they will do is order this report from the Title Company, who will research ownership of the land back to the time it was owned by the government.
Once an offer is received, all parties involved will want to review the Preliminary Title Commitment. There will be two separate title insurance policies purchased. The seller will buy the purchaser a title insurance policy, and the buyer will purchase one for their lender (if the home purchase is being mortgaged.) This is a one time charge and a policy that last as long as the buyer owns the home.
After your sales contract has been accepted, a title professional will search the public records to look for any problems with the home’s title. This search typically involves a review of land records going back many years. More than 1/3 of all title searches reveal a title problem that title professionals fix before you go to closing. For instance, a previous owner may have had minor construction done on the property, but never full paid the contractor. Or the previous owner may have failed to pay local or state taxes.
Owner’s Title Insurance, called an Owner’s Policy, is usually issued in the amount of the real estate purchase. It is purchased for a one-time fee at closing and lasts for as long as you or your heirs have an interest in the property. Only an Owner’s Policy fully protects the buyer should a covered title problem arise with the title that was not found during the title search.
Most lenders usually require a Loan Policy when they issue you a loan. The Loan Policy is usually based on the Dollar amount of your loan. It only protects the lender’s interests in the property should a problem with title arise. It does not protect the buyer. The policy amount decreases each year and eventually disappears as the loan is paid off.