Title Insurance-Think of it as a "Horse of a Different Color". by Darrell Simmons/Northern Title

In an article published in American City Business Journals Inc., Daryl W. Bailey wrote that title insurance is a product that is both widely used and accepted and often misunderstood in its scope and purpose. The result is a lack of understanding among many who purchase it. This misunderstanding is undoubtedly attributable to the fact that title insurance is quite different from any other commonly purchased insurance.

Differences
No choice. One difference is the option to buy title insurance. The consumer can decide whether or not he wants to buy many kinds of insurance, but mortgage lenders will require property owners to purchase it.
The price of a "mortgagee" title policy, which protects the lender, is part of the closing costs of a real estate deal. It will repay the balance of the property owner's mortgage if a claim against the property voids the title.
Mortgagee policies remain in effect until the loan is repaid.
Most lenders require the property owner to buy a new mortgagee title policy if the property is refinanced. When the new loan pays off the existing loan, the old mortgagee policy expires.
If a property owner refinances his property within five years of the original mortgage, then he is entitled to a premium discount on a new mortgagee policy.

Once is enough
Another difference is that the premium for a title policy is paid only once as opposed to continually paying premiums. Who pays the premium is negotiable.
Title insurance premium rates are set by the Utah Department of Insurance and are based on the property's sale value using a sliding scale.

Time zone.
The last important difference between title insurance and most other insurance -- and probably the most misunderstood -- is the period of time with which the insurance is involved.
Most insurance insures against an event that may occur in the future. Quite differently, title insurance insures against what is known to have happened in the past.
If a claim is made that is contrary to the status of title as reflected in the insurance policy, the insurance company has the right to prove that it is correct. If the insurance company fails to do this, then payment will be made in accordance with the amount of actual damages suffered up to the face amount of the policy.
Title insurance protects the purchaser and the lender if someone challenges the title to the property because of title defects that were unknown when the policy was issued.

Functions
Title companies perform functions which generally can be divided into two categories: the title function and the closing function.
Because title insurance in Utah is highly regulated, title policy forms are standardized. Consequently, the policy language is the same, regardless of the company. However, companies may describe their coverage exceptions differently.
Accordingly, it is essential that a person purchasing title insurance read the policy carefully, especially Schedule B, which explains limitations, exclusions, exceptions and special conditions.

Coverage
If someone claims an interest in the property, a title company will defend the title in court and pay for any actual loss under certain circumstances such as:
Liens or encumbrances that are not listed in the title policy exceptions.
Leases, contracts or options on the land were not recorded in the public records and disclosed to the purchaser.
The title policy failed to disclose legal restrictions on property use.
An easement exists that was not in public records and of which the purchaser has no knowledge. The title policy assures a legal right of access to the property. This means that the property owner has a right to travel from the property to a public street or road.
A deed or other document in the chain of title is invalid as a result of forgery, fraud against the rightful owner, a signature given under duress or a signature by a person legally incompetent to sign or someone claiming to be someone else.
In terms of monetary value, an owner's policy only covers up to the value of the property at the time of purchase. It does not cover any increase in value unless a special "increased value endorsement" is purchased. A mortgagee policy covers up to the principal amount of the loan.
In general, a title policy will not cover problems to title that occur after the date the policy was purchased.
It will not protect the purchaser from problems that he creates or from problems unrelated to the purchaser's or the lender's property interests
The policy also will not cover any special exceptions -- such as a public utility easement -- added by the title company during the title examination process. These exceptions must be listed in Schedule B of the policy.
In addition, a title policy generally will not cover certain governmental ordinances, laws, regulations and actions, eminent domain proceedings where notice has not been filed in the public records, certain acts of the insured, matters resulting in no loss or damage to the insured, marketability of the title and creditor's rights laws.

Insist on Title Insurance
Because of title insurance, homebuyers can enjoy complete protection against claim and loss. When title insurance is provided, lenders are willing to make mortgage money available in distant locales where they know little about market conditions. Only title insurance issued through members of the American Land Title Association offers the unique safeguards that are essential for secure investments by both real estate purchasers and lenders. Make sure you are fully protected. Insist on a title policy.