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What is a title company and why do I need them to purchase my home?
Think of a title company like you would think of an insurance company. Title officers do not represent the seller, buyer, mortgage officer, or real estate broker. Title officers are a natural party in the transaction. They help facilitate the transfer of the property from one owner to the next.
Title insurance is a unique form of insurance. It is different from other forms of insurance in that it protects you, the insured, from a loss that may occur due to matters or faults in the past. Other types of insurance such as auto insurance protect you from events that may occur in the future.
The title insurer carefully researches every known, recorded document regarding current and prior ownership of the property being purchased or transferred to determine the current status of the title.
This includes close scrutiny of all public ownership and court records, property tax records, recorded surveys, legal descriptions and liens. The search may cover such relevant documents as deeds, deeds of trust, mortgages, wills, judgements, divorce decrees, liens and assessments relative to the property in question. This process of "risk elimination" is followed to determine the insurable interest and what visible title defects will have to be cleared before the title is transferred.
However, no matter how extensive and exacting the title search may be, the possibility of "hidden risks" remains. Records may not reflect claims of missing heirs, false impersonations, forgeries, competence of the Grantor, improperly probated wills and clerical errors in recording legal documents. Exposure to loss may be the result of confusion due to similar or identical names, deeds executed under expired or false powers of attorney, unsatisfied claims not shown on the records, mistaken interpretation of wills and trusts, unpaid taxes, certain easements, and pending legal actions.
In the case of a transfer of ownership, the seller generally provides a title insurance policy to the buyer affirming his right to sell the property and assuring that it is "free and clear" from unacceptable liens and encumbrances. As a home is the largest single purchase most families make, it is important to know that the investment is protected. "Hidden risks" make the purchase of title insurance a prudent one-time investment.
Because lenders understand the potential impact of the "hidden risk" factor of any real estate transaction, they typically request a title insurance policy to protect the amount of money they loan to purchase, refinance, or remodel the property. The borrower generally provides a title insurance policy to the lender that insured the lender against a loss (up to the face amount of the policy) in the event there is a valid claim against the title to the property that was not disclosed to the lender.
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