Title insurance is meant to protect an owner's or a lender's financial interest in real property against loss due to title defects, liens or other matters. A title insurance policy insures against events that occurred in the past of the real estate property and the people who owned it.
There are two types of policies: owner and lender. Lenders require title insurance to protect their interest in the collateral of loans secured by real estate. Buyers purchasing properties for cash or with a mortgage lender often want title insurance, an owner’s policy, as well.
The cost of title insurance has two components: premium charges and service fees. Premium rates are based on five cost considerations, including those related to:
1. Maintaining current title information
2. Searching and examining the title to subject properties
3. Resolving or clearing defects to title
4. Covering title defects
5. Allowing for a reasonable profit
Usually, when you have a mortgage, and you use the same title company for both owner and lender title insurance, you get somewhat discount. But A federal law called the Real Estate Settlement Procedures Act (RESPA) entitles the individual homeowner to choose a title insurance company when purchasing or refinancing residential property. Typically, homeowners don't make this decision for themselves, instead relying on their bank's or attorney's choice; however, the homeowner retains the right.
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