Many first time Georgia home buyers are often puzzled by an entry in the section called “Buyer’s Costs.” The entry is “title insurance.” This entry may also appear in the tabulation of buyer’s costs in a commercial real estate transaction. The individuals who conduct real estate closings rarely have time to explain this term to puzzled buyers. Instead, they just ensure that the buyer pays the premium at the time of closing. Understanding the mechanics of title insurance and its potential benefits for buyers can be critical if individuals or corporations not a party to the sale transaction later assert an interest in the property. Such a claim can imperil the security provided to the lender by the mortgage or can affect the ability of the buyers to re-sell the premises if such a claim is unresolved.
The basics of title insurance
Title insurance is exactly what the name implies – an insurance policy that provides financial protection if unknown parties later make a claim on the property that is adverse to the interests of the lender and the buyer. Two types of title insurance policies are sold in Georgia – mortgagee’s insurance and owner’s insurance.
The mortgagee’s policy
The typical mortgagee’s policy insures the lender, usually a bank or credit union, against claims that may occur due to defects in the title to the property. The policy also insures that the lender will have a first lien on the property for the amount of the loan. Virtually all institutional lenders require the buyer to purchase mortgagee’s insurance at or before the time of closing.
The owner’s policy
An owner’s policy of title insurance from defects in the chain of title that may emerge after closing. Such defects may include errors or omissions in deeds, errors in examining the records of prior sales, unpaid liens, forged documents, undisclosed or missing heirs, and incorrect legal descriptions. Most purchasers of residential property do not purchase owner’s policies, preferring instead to rely on the protections of the mortgagee’s policy. This choice is often influenced by the fact that most lenders obtain a review of title prior to approving the loan.
Whether a buyer should rely on the mortgagee’s title insurance policy is a question that should be discussed with an experienced real estate attorney.