Title insurance protects a buyer or lender against defects in ownership — liens, judgments, easements, forgeries, and other issues — that a title search of the public record may miss. Unlike car or health insurance, it's paid as a one-time premium at closing rather than an ongoing cost. A loan policy protects the lender for the life of the loan, while an owner's policy protects the buyer's own interest in the property.
When a piece of real property is financed, purchased, or sold, a record of the transaction is generally filed in public archives. In Tennessee, real estate documents are recorded in the office of the Register of Deeds for the county in which the property is located. Other events that can affect ownership — liens, judgments, court orders, estate documents, easements, and the like — are documented and filed as well. When a buyer purchases title insurance, the title company searches these records to find, and remedy if possible, issues that may affect the purchaser’s ownership.
Title Search and Exam
This is where title insurance differs from traditional insurance models. When you purchase a policy insuring you against matters relating to your car or health, the insurance company assesses the risk of insuring you and bases its premium on the risk being assumed. With title insurance, the insurer first works to identify the status of ownership, liens, and other matters affecting title by collecting documents from the public records that are statutorily identified for recording real estate transactions. This process is called the title search. Once the search is complete, the title insurance underwriter can determine the insurability of the title and list any exceptions from coverage and requirements to insure.
Undiscovered Risks
Even the most skilled title professionals may not find every title problem. Some risks are difficult or nearly impossible to identify in a title search, such as issues resulting from filing errors, forgeries, fraud, undisclosed heirs, and incompetency or incapacity. That’s one reason title insurance can play a key role in protecting your real estate investment: it covers risks the search itself can’t catch.
Loan Policy
When you purchase a home or other real property by securing a mortgage, your lender will usually require you to purchase a loan policy of title insurance. This policy insures the lender against covered title defects up to the amount of the loan. Coverage in favor of the lender lasts for the life of the loan, subject to the limited circumstances stated in the policy.
Owner’s Policy
You’ll also have the option of purchasing an owner’s policy of title insurance, which insures the owner listed on the policy directly and describes the real property interest owned. Both the owner’s and the loan policy are subject to the policy’s provisions, including the covered risks, exclusions from coverage, conditions, and the exceptions to title listed on the policy’s schedule.
Premium
You pay a one-time premium for both the loan policy and the owner’s policy at the close of your transaction, based on the value of the property and the amount of the loan. This is another way title insurance differs from other insurance models, where premiums are paid on an ongoing basis. The purchase of a home or other real estate may be the largest financial investment you ever make — title insurance gives you added peace of mind that the title to your investment is insured.
Fidelity Title & Escrow Company, our firm’s affiliated title company, handles title searches, title binders, title insurance, loan closings, foreclosures, document preparation, settlement, tax certifications, contract review, and document recording. Contact us to discuss your closing.
This publication is a service to our clients and friends. It is designed to give only general information on the topic covered and is not intended to be a comprehensive summary of recent developments in the law, to treat exhaustively the subjects covered, to provide legal advice, or to render a legal opinion.