What is Title Insurance & Why Do I Need It

Lenders today require title insurance to protect their interest in property that they lend on.  If you have a mortgage loan or are taking a mortgage loan, it’s a sure bet that you will be required to purchase title insurance.

What is Title Insurance?

Title insurance protects the insured party against losses related to the title of the property.  Well what does that mean?  Property in the United States has its title recorded in the land records of the local area.  In Connecticut, these land records are managed by the town clerk of each individual town, and are stored at the town hall.  Unlike a car, you never physically hold the title to your property.  Rather, as each lien (such as a mortgage) becomes active, a mortgage deed is recorded showing it.  When each lien is released, a release of lien is recorded.  Over time, each properties record’s become more and more complicated.  This can be a source of error when a title search is done on the property, and may result in damage to your (and your mortgagor’s) claim to the property.  Title insurance can also protect against fraud in transfers – for instance, perhaps the last person to sell the house forged a signature on the deed.  Real estate taxes and other liens can also be title insurance issues, among a great deal of other items.

When do I purchase title insurance?

Title insurance can be purchased at any time, but is most commonly purchased immediately upon the purchase of a property or the closing of a loan.  When you close a loan you will see the cost of the title insurance listed on the settlement statement.  The loan-taker typically pays the entire premium, even though the title insurance protects either only the lenders interest, or both the lender and the purchaser’s interest.

Why do I need a new insurance policy when I refinance?

When you purchase a property you typically take out two title insurance policies – a “Loan Policy” that protects the interest of the lender, and an “Owner’s Policy” that protects your own interest in the property.  These policies last until the protected party no longer has an interest in the property.  In the case of the Owner’s Policy, it will not need to be repurchased no matter how many times you refinance.  Unfortunately, when you refinance, the lender for your previous loan no longer has an interest in the property, and therefore the previously purchased Loan Policy no longer exists.  Even in the case of a same-lender refinance, when one loan is paid off and a new loan taken, a new policy must be purchased.  Discounted title insurance rates ARE available in Connecticut when you are replacing one loan policy with another.

Where do I buy title insurance?

In Connecticut you must be an attorney to be a title agent and thus to sell title insurance.  Typically, when you choose the attorney that will close your loan, they will write the title insurance policy and bill you for it.  Title insurance is almost never shopped for by Connecticut purchasers individually, but rather by their attorneys.  It should be noted that in other states, such as New York, the title insurance agent and the closing attorney/agent are not always the same, and in many cases, cannot be the same.

In summary, title insurance protects interests in property from errors and fraud related to title.  The Hamad Law Firm, LLC, of New Haven, Connecticut, is a title agent and writes for reputable title insurance companies that do business in Connecticut.

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