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What is Title Insurance?

The title industry is comprised of thousands of professionals across the nation who search, review, and insure land titles to protect homebuyers and mortgage lenders who invest in real estate. They also conduct the majority of real estate closings in the country.

There are two types of title insurance: Lender's title insurance, also called a Loan Policy, and Owner's title insurance. When issuing a loan most lenders require a Loan Policy based on the dollar amount of the loan. It protects the lender's interests in the property should a problem with the title arise. The first step in the process involves a search of the public records to determine who owns the property, and what interests may already exist in that property. A title search entails examining the records in the offices of recorders or registers of deeds, clerks of courts and other municipal and county officials, or similar records housed in a title company's "title plant." These records cover all recorded documents, judgments, liens, taxes, street easements, sewer assessments, special taxes and levies, and other matters.

This extensive review provides advance warning so that any problems with the title can be resolved before closing whenever possible. Often, court action or legal steps must be taken to resolve problems. A recent industry survey revealed that corrective actions had to be taken in one out of every four real estate transactions. Because of the research and corrective work that title professionals perform, buyers are typically unaware of the problems resolved without delaying the closing process. The emphasis on risk prevention greatly reduces the number of claims associated with title insurance compared to other types of insurance.

Despite the exhaustive title search, hidden hazards can emerge after closing. Things such as mistakes in the public record, previously undisclosed heir's claiming to own the property, or forged deeds could cloud the title. This is where owner's title insurance comes in.

Owner's title insurance is usually issued in the amount of the real estate purchase. It is purchased for a one-time fee at closing and lasts as long as the owner or their heirs have an interest in the property. Owner's title insurance protects the buyer by paying claims and legal fees in defending the title if a problem is found that was not uncovered during the title search.

History of Title Insurance

Title insurance has protected the American dream of homeownership for more than 125 years. The first title insurance company was founded in 1876 by a group of Philadelphia conveyancers. Until that time, conveyancers were responsible for personally searching title records to determine ownership of the land and encumbrances on the title, but there were limits on the protection that the conveyancer could provide. This led to an historic court decision in 1868 encouraging the creation of title insurance.

The continuing expansion of the industry became much more pronounced following World War II as returning servicemen began to buy homes in large numbers. The title insurance industry then shifted from a local enterprise to a national business. Yet despite the national lending/investment environment, and the advent of the secondary mortgage market, title work has been, and continues to be, based on state laws and local customs.

Regulatory Environment

Virtually every state has statutes and regulations governing the business of title insurance, with deference given to these enactments since states have legitimate interests in protecting their citizens on a local level. Because of the importance and specialized nature of title insurance, as well as a desire to preserve title insurers' safety and soundness, a number of states have longstanding "monoline" statutes. This means that only licensed title insurers can sell title insurance and insurers licensed in any other line of insurance cannot sell title insurance. This ensures that companies issuing certain kinds of insurance have the necessary reserves to cover the assumed risk. In addition, many State Departments of Insurance regulate the rates, forms, practices and other activities associated with our business.

Title Insurance Today

Today, the role of title companies has evolved as they offer a broader scope of services and continue to provide security to real estate investors. As rapid and dramatic developments drive the real estate market, real estate investors in this country continue to receive title protection at a level of excellence unequalled anywhere in the world. Real estate is the nation's largest asset, and title insurance ensures the quick and secure transfer of land, giving mortgage lenders, homebuyers and investors a sense of confidence in their investment.