Title Insurance Terms To Know

Purchasing a home is an exciting time for most people, but it can also be confusing and fraught with unfamiliar terminology. The list of specialized terms related to real estate purchases is seemingly endless, so here we will focus on some of the most common terms used related specifically to the purchase of title insurance.

The Basics: What Is Title Insurance?

To begin, let’s define title insurance itself. At its most basic, it is a loss-prevention insurance policy that protects against legal defects in the title that have occurred prior to purchase. Generally, two policies are issued. An “Owner’s Policy” covers the homeowner and a “Lender’s Policy”, sometimes referred to as mortgage insurance, covers the mortgage lender.

You also can’t purchase title insurance just anywhere. You will need to purchase your policy from a licensed agency. Oftentimes, your bank or mortgage lender will recommend a title insurance agency to you, but as the purchaser, the choice of which company to use is yours.

Other Terms To Know

“ALTA” is a term you will hear quite a bit when purchasing title insurance. ALTA is the American Land Title Association; the leading trade association of title insurers. ALTA policies are widely used throughout the United States and are preferred by many lenders. The ALTA Residential and ALTA Homeowner’s policies are the two policies used most often in residential property transactions.

Escrow is a term with many different meanings. As it relates to title insurance, escrow refers to the funds that you provided as earnest money when you made the initial offer on the property. These funds have been placed into a special account by your escrow holder, often a title insurance company, and will be released once all obligations related to the property purchase have been met. This typically happens at the property Closing, which is the final meeting; the meeting at which property ownership is transferred.

Terms From The Title Report

One of the main duties of the title agency is to perform a Title Search, which is a thorough check of public records to ensure the property is legally available for sale. Once this is completed, you will receive a Title Report. The report will contain the results of the title search and you may find terms you are unfamiliar with. An Abstract or Abstract of Title, for instance, is simply a document that shows the complete ownership history of a piece of property. This will include a listing of all past property owners, mortgages and liens. This differs from a Deed, which is a legal document describing the property based on a formal land survey, maps and measured distances. The Deed only lists the current property owner.

You may discover that the property you are interested in has Encumbrances or Liens against it. An Encumbrance is a legal interest in the land, which may affect its value. Encumbrances may take the form of easement rights, zoning ordinances, claims, unpaid taxes or restrictive covenants. Encumbrances do not restrict the sale of the property. A Lien is a financial claim to the property. They may take the form of mortgages, mechanic or contractor liens or court judgments. Liens generally must be paid off before a mortgage lender will allow the property sale to take place.

This is just a brief explanation of some of the many terms used in real estate transactions today. For more detailed information and if you have specific questions or concerns, you should consult a qualified local real estate title agent.

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