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What Is Title Insurance?

Learn the basics of title insurance before you start shopping for a mortgage.

Getting ready to buy your dream home? Title insurance can protect you from unexpected legal problems.

What is title insurance? Who buys it, and when do they pay for it? What is a title, anyway? We’ll answer all these questions in this post.

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What Is Title Insurance?

First, let’s define what a title is:

According to the Michigan Department of Insurance and Financial Services, a title “means the collective ownership of rights for a piece of property and includes all previous transfers of ownership and liens on the property”. Having a title to a piece of real estate documents your ownership of that property.

Title vs. Deed in Real Estate

A deed transfers the title from one person to another. A title, on the other hand, indicates property ownership.

Title insurance is a policy you take out to protect against defects in your property. In this context, “defects” has a legal sense and refers to things like liens, back taxes, encroachments, easements, documentary problems, and fraud.

There are two types of title insurance: lender’s insurance protects the mortgage lender, and owner’s insurance protects the owner. In Michigan, the buyer usually pays for the lender’s title insurance, while the seller pays for the buyer’s owner insurance.

Why Do You Need Title Insurance?

The simple answer is that lender’s title insurance is part of the mortgage closing process. But buyer’s title insurance offers you some protection, as well.

Essentially, title insurance protects you against problems with your title arising from others’ past actions. Should one of these come to light, the title insurance agency will defend you against their claim. They may even go to court and pay any settlement necessary to clear the title.

However, it’s important to note that title insurance is only effective for problems arising from past actions. It does not offer any protection for problems that happen during your ownership.

How Do You Get Title Insurance?

Title insurance can be obtained through an agency or a title insurance underwriter. Usually, the person paying for the insurance chooses the provider. The insurer will perform a title search, which involves examining public records for possible defects. If everything comes back clean, you’ll get a policy protecting you from any unknown defects. If however, the search turned up some known problems, these will be listed and excluded from the policy.

Title insurance costs depend on the purchase price, mortgage amount, insurer, and the number of policies you’re buying; if you choose to purchase lender’s and buyer’s insurance from the same provider, you may get a discount.

The lender’s title insurance policy remains in effect until you pay off your mortgage. The buyer’s policy is good until you sell your house, although you may want to look into a new policy if you decide to refinance. If you die and your house passes on to your descendants, the title insurance may remain valid.

More Information on Title Insurance

Title insurance is a complicated topic, and it’s something that all Michigan home buyers and sellers should know well. For additional information, you can download Insurance Information for Michigan Consumers, a PDF developed by the Michigan Department of Insurance and Financial Services. Or you can contact our specialists for help navigating the confusing world of mortgages.

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