Why do you need title insurance?
To protect possibly the most important investment you'll ever make - the investment in real estate.

A lender goes to great lengths to minimize the risk of lending money for the purchase of real estate. First, credit is checked as an indication of the borrower's ability to repay the loan.

Then, the lender seeks assurance that the quality of the title to the property to be acquired and which will be pledged as security for the loan is satisfactory. The lender does this by obtaining a loan policy of title insurance.

The loan policy does not protect the borrower.
The loan policy protects the lender against loss due to unknown title defects. It also protects the lender's interest from certain matters which may exist, but may not be known at the time of the sale.

But, this policy only protects the lender's interest. It does not protect the borrower. That is why a real estate purchaser needs an owner's policy, which can be issued at the same time as the loan policy, usually for a nominal one-time fee.

What is the danger of loss?
If the lender has title insurance protection and the owner does not, what possible danger of loss exists?

As an example, assume real estate was purchased for $100,000. A down payment of $20,000 is made, and a lender holds an
$80,000 mortgage lien, or beneficial interest. The lender acquires title insurance protecting the lender's interest up to $80,000.
But the purchaser's down payment of $20,000 is not covered.

What if some matter arises affecting the past ownership of the property?
The title insurance company would defend and protect the interest of the lender. The purchaser, however, would have to assume the financial burden of his or her own legal defense. If the defense is not successful, the result could be a total loss of title.

The title insurance company pays the lender's loss and is entitled to take an assignment of the borrower's debt. The purchaser loses the down payment, other equity in the property that may have accumulated, and the property. And the balance on the note is still due!

How can there be title defect if the title has been searched and a loan policy issued?
Title insurance is issued after a careful examination of copies of the public records. But even the most thorough search cannot absolutely assure that no title hazards are present, despite the knowledge and experience of professional title examiners. In addition to matters shown by public records, other title problems may exist that cannot be disclosed in a search.

What title insurance protects against.
Here are just a few of the most common hidden risks that can cause loss of title or create an encumbrance on title:

What protection does title insurance provide against defects and hidden risks?
Title insurance will pay for defending against any lawsuit attacking the title as insured, and will either clear up title problems or pay the insured's losses. For a one-time premium, an owner's title insurance policy remains in effect as long as the insured, or the insured's heirs, retain an interest in the property, or have any obligations under a warranty in any conveyance of it. Owner's title insurance, issued simultaneously with a loan policy, is the best title insurance value a property owner can get.

What's in a Title Search?
You've decided to purchase a home and hope to take possession as soon as possible. The terms have been agreed upon and all the financial arrangements have been made. But there's one important detail remaining. Before the transaction can close, a title search must be made.

The most accurate description of title is a bundle of rights in real property. A title search is the process of determining from the public record just what these rights are and who owns them.

A title search is a means of determining that the person who is selling the property really has the right to sell it, and that the buyer is getting all the rights to the property (title) that he or she is paying for.

The search process can be undertaken by the title company in those jurisdictions where the company maintains offices. In some areas, however, searches are made only by practicing attorneys. However the search is performed, in most real estate transactions today a title insurance policy is purchased to assure the buyer that he or she has purchased a valid title.

In those transactions where title insurance is involved, the title company must determine insurability of the title as part of the search process. This leads to the issuance of a title policy, which insures the existence or non-existence of rights to the property.

The title insurance company will, at its own expense, defend the title and will pay losses within the coverage of the policy if they occur.

But what exactly, is involved in a title search?
The Chicago Title and Trust Family of Companies provides the following step-by-step review:

Chain of Title
This is simply a history of the ownership of a particular piece of property, telling who bought it and sold it, and when. The information may be derived from public records ÷ usually a County Clerk's or Recorder's Office ÷ or obtained from title plants privately owned and maintained by title companies. There are great varieties of such plants ÷ index cards, punch cards, tract books, even sophisticated computerized plants. However, they all contain essentially the same information from which the history of the title may be secured.

Tax Search
This is a search to determine the present status of general real estate taxes against the property. The tax search will reveal if taxes are current or whether any taxes are past due and unpaid from previous years. In addition, the tax search will indicate the existence of any special assessments against the land and, if so, whether or not these assessments are current or past due.

A due and unpaid tax or special assessment is a prior lien or claim on the property above all others. If a buyer purchases property with unpaid and past due taxes or assessments against it, he or she is likely to find a government body ÷ the village, county or state ÷ placing the property up for sale to pay those taxes or assessments. A tax search reveals the status of the taxes. Title insurance protects the buyer against loss from unpaid and past due taxes and assessments.

Report on Possession
In many places where it operates, the CTIC Family sends inspectors to look at the property to verify the lot size, check the location of improvements, look for evidence of easements that are not shown of record and check on who is living there.

The purpose of this is to supplement the information learned from the title search. In the eyes of the law, any buyer of real estate is assumed to have notice of all matters properly shown in the public records as to that real estate as well as any information that an actual inspection may reveal.

If the inspector detects an unrecorded easement or other evidence of outstanding rights that could affect the owner's title and possibly the value and intended use, the company tells the buyer of these things before he or she closes the purchase. Those matters must then either be disposed of or shown as exceptions in the title insurance policy. Sometimes when an acceptable survey and appropriate affidavits are received, an inspection will not be made.

Judgment and Name Search
One of the most important parts of the title search is to determine if there are any unsatisfied judgments against the seller or previous owners which were in existence while they owned the title. A judgment is a general lien against the debtor's real estate and constitutes security for any money owed under the judgment. The real estate can be sold to satisfy the judgment.

It is extremely important to be sure that a title is not subject to judgments against the seller or previous owners. Title insurance provides this protection. A judgment against a person named Smith may affect the title of a seller named Smith, depending on whether or not they are the same person. So all possible variations of the name must be examined.

For example, the name Smith might be spelled Schmidt, Schmid, Schmidtt, Schmidz, Schmied, Schmiedt, Smid, Smythe, and so on. The name Nichols can be spelled 73 different ways, from Nachols to Nychals. The task is to determine which of these applies to the owner in question. First names have to be checked, too. There are 25 foreign forms of John, including Johann,
Jehan, Hans, Shaun, Gudi, and Efom.

Rights established by judgment decrees, unpaid federal income taxes, and mechanic's liens all may be prior claims on the property, ahead of the buyer's or lender's rights. If a judgment is discovered that constitutes a defect in the title, it is pointed out, and the seller must then eliminate it before the title of the new buyer can be insured free and clear of that judgment.

Commitment
When these searches have been completed, the title company issues a commitment to insure, stating the conditions under which it will insure the title. The buyer and seller and the mortgage lender can proceed with the closing of the transaction after clearing up any defects in the title which may have been uncovered by the search and examination.

The mortgage lender is as concerned as the buyer about the quality of the title because the property is to be security for the new mortgage loan. The mortgage lender requires assurance that it has a valid first (or another acceptable priority) mortgage lien on the property. This is not only common sense, but generally is a legal requirement of regulated mortgage lenders.

The lender's title insurance, however, doesn't protect the new buyer of the property. Although the land is the same, the interest of the buyer and the interest of the lender are very different. The provisions of a lender's title insurance policy are very different from those of a buyer's policy, so the buyer should obtain his own policy, often issued simultaneously with the lender's policy.

What Every Home Buyer & Seller Should Know About Title Insurance

Most home sellers and buyers have been informed that obtaining title insurance will provide them necessary protection over possible title defects; but many remain uncertain about why this is so ÷ or even about what title insurance is. At the Chicago Title and Trust Family of Companies, we believe we have everything to gain by throwing some light on the subject. The more you know about title insurance and its pricing, the more confident you'll be about coming to us for a policy.

A Seller's Concern: How Much Does it Cost?
A title insurance policy from the CTIC Family is much more cost-effective than the other kinds of insurance you have had to purchase. For a single, one-time-only fee, we provide a title policy that remains effective until the property is sold to a new owner ÷ even if that doesn't occur for decades. The CTIC Family's price structure is among the lowest ÷ giving you the most respected name in title insurance at highly competitive rates.

Why the Seller Needs to Provide Title Insurance Any prospective buyer will need evidence that his investment in your property is free of title defects. In fact, your contract of sale probably requires it. The title insurance policy that you provide the buyer is a guarantee that you are selling a clear title to your real estate, unencumbered by any legal attachments that might limit or jeopardize ownership. The CTIC Family name carries special authority: it reassures your buyer that the title has passed the most careful scrutiny. In addition, it can help your deal close more quickly and easily.

Why the Buyer Needs Title Insurance Without a title insurance policy, you may not be fully protected against errors in public records, hidden defects not disclosed by the public records, or mistakes in examination of the title of your new property. As a result, you may be held fully accountable for any prior liens, judgments or claims brought against your new property. However, your policy insures that if such an occasion arises, you will be defended free of charge against all covered claims and paid up to the amount of the policy to settle valid claims. With a title insurance policy from the CTIC Family, backed by our vast resources and financial strength, you need never worry that your new property's history will tarnish your bright future.

Why Title Insurance Is Needed When Refinancing a Mortgage Loan

Today's lower interest rates have spurred you to refinance your mortgage. Now you can expect to reap the benefits of substantially reduced monthly mortgage payments, but you can also expect to pay the lender the typical closing costs associated with any mortgage loan.

Why? Because from the lender's standpoint, a refinanced loan is no different than any other mortgage loan. So be prepared for service fees or points and other expenses including a new charge for title insurance.

Title Insurance is Important When Refinancing
Why do you need to buy title insurance again even though you purchased a policy when you first bought your home and there is no change in ownership?

It's because a separate policy is needed by the lender insuring the validity of your mortgage when it is made.

For as long as you own the property your mortgage is valid, but it doesn't insure the new mortgage created when you refinance, and it doesn't provide protection against events that may have transpired between the time you purchased the property and when it is refinanced.

For example, you may have taken out a second mortgage on the home that could threaten the priority of the new lender's mortgage. Or, there could be legal judgments against you or a mechanic's lien against the property by a supplier who wasn't paid for home improvements.

Lenders also insist on a new title policy because many mortgages are packaged as securities and sold to investors in the secondary mortgage market. Title insurance is the only practical way to provide the assurance investors demand and to ensure that the mortgages backing these securities are valid and enforceable.

For your refinance transaction with the Chicago Title and Trust Family of Companies, you may qualify for a special title insurance rate based on the loan amount. There may be additional charges for recording fees, closing fees and endorsements. Your lender can provide you with an estimate of these costs.

How to Prepare for Your Refinance Closing
Once you have made the decision to refinance your home, you'll want your transaction to progress as smoothly and efficiently as possible. In an effort to avoid potential problems and delays, consider the following points. Check with your real estate agent to determine which ones apply to you.

Source: Chicago Title Insurance Company. For more information see
www.ctic.com