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Title Insurance

Another issue that arises at this time deals with the title to the property. The seller will normally furnish a 'title insurance' policy, wherein a marketable title is insured by a title insurance company. When the property is sold, the buyer then needs a new title insurance policy to protect his or her rights in the property. Title insurance protects the buyer against title defects, i.e. defective title or unmarketable title. The insurance is a one-time expense and covers the period of time up to the time the buyer becomes the owner of the property.

Often times, the lending institution will require title insurance to insure its interest in the property, also. There will then be two title insurance policies. The reason for two title insurance policies, i.e. the buyer's title policy and the mortgagee's title policy, is that the lending institution, the mortgagee, needs to be assured there are no other  liens superior to its, and you want to see that there are no encumbrances on the title that would restrict your degree of ownership, or use, of the property for the purpose for which you purchased it.


The purchaser may want to have the title insurance policy examined by an attorney since title insurance policies usually contain some exclusions. These exclusions could render the policy useless in protecting the buyer's interest in the property.


A less common approach today to provide evidence of title is for the buyer to have the title for the property examined by an attorney. Your attorney will examine the  abstract of title  to determine if the title is 'clear.' That is, no one else has any claim to the property and the seller can convey marketable title to you. If the title is not 'clear,' then the seller would ordinarily have a reasonable amount of time to 'clear' the title. If the seller cannot produce a 'clear' title, then the buyer would not have to go through with the purchase.


Financial institutions will also require at the closing that you provide an insurance binder or some other evidence of a homeowner's or hazard insurance policy.

 

When the property is sold, the buyer then needs a new title insurance policy to protect his or her rights in the property.