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How Title Insurance Works

Title insurance protects the lender and/or owner against lawsuits or claims against the property that result from disputes over the title. There are two different kinds of title insurance policies: lender’s and owner’s. Almost every lender in a consumer transaction will require that the purchaser buy a lender’s title insurance policy to protect the lender against title defects from the past. But lenders do not require that purchasers buy title insurance to protect their own interest in the property. However, the owner’s policy can be purchased for a nominal fee with the purchase of the required lender’s policy. We firmly believe that purchasing Real Estate without an owner’s title insurance policy is a foolish decision.

What Does a Title Company Do?

Southtrust Law & Title Company | How title insurance works. Man signing a document.

First of all, mortgage lenders require a title examination. Audits like this involve reviewing past deeds, wills, and trusts. This makes sure the title has passed correctly to each new owner. The examiner tries to make sure the title to a piece of real estate is suitable for sale. A title company performs this examination, then issues title insurance for that property.

It’s important to realize, the lender’s title insurance will only protect the lender against title problems. Sooner or later, some oversight or a defect in a title will occur.

With this in mind, you might want to protect yourself with owner’s title insurance. This policy will cover legal fees and your equity (usually your purchase price) in the real estate up to the policy limits. It protects against defects that occurred before your ownership of the property. Even after you buy the house.

Starting the Process

Southtrust Law & Title Comnpany | Hands Protecting House

After the buyer and seller sign the sales contract. The contract is then delivered to a closing agent. After accepting the escrow, an agent will open a title order starting the closing process.

After the buyer and seller sign the sales contract. The contract is then delivered to a closing agent. After accepting the escrow, an agent will open a title order starting the closing process.

Title Search and Examination

The title examination is a search made of the public records. These records include past deeds, wills, trusts, mortgages, liens, divorce settlements. These documents can affect the property title. The title company verifies the legal owner during this examination along with any debts owed against the property.

Document Preparation

Southtrust Law & Title Company | Keys to Home Ownership

After completing the examination, the title company will prepare, review, and send out a preliminary title commitment. The closing agent will then review instructions and requirements of the new lender as well as instructions from other parties, review legal and loan documents & assemble charges. Finally, the agent prepares closing statements and schedules the closing.

Settlement or Closing the Transaction

During the closing settlement, the title company oversees the closing transaction. First, the seller will then sign the deed and closing affidavit. Next, the buyer signs the new note and mortgage. Then, the old loan is paid off. Finally, the seller, real estate agents, attorneys and other parties present at the closing of the transaction are paid.

Title Company Post Closing

After completing the signing, you are now done. The title company will forward payment to any prior lender, and pay all parties involved with your closing. The transaction documents are sent to the land records office in the county where the property is located. Title insurance policies are prepared and sent to the new lender and to you. This all happens without any further actions by the buyer or seller.

Feel free to contact any of our attorneys if you would like to discuss title insurance in more detail.