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To
protect possibly the most important investment you'll ever make
- the investment in real estate.
A lender
goes to great lengths to minimize the risk of lending money for
the purchase of real estate. First, credit is checked as an indication
of the borrower's ability to repay the loan.
Then,
the lender seeks assurance that the quality of the title to the
property to be acquired and which will be pledged as security for
the loan is satisfactory. The lender does this by obtaining a loan
policy of title insurance.
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The
loan policy protects the lender against loss due to unknown title
defects. It also protects the lender's interest from certain matters
which may exist, but may not be known at the time of the sale.
But,
this policy only protects the lender's interest. It does not protect
the borrower. That is why a real estate purchaser needs an owner's
policy, which can be issued at the same time as the loan policy,
usually for a nominal one-time fee.
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If
the lender has title insurance protection and the owner does not,
what possible danger of loss exists?
As
an example, assume real estate was purchased for $100,000. A down
payment of $20,000 is made, and a lender holds an $80,000 mortgage
lien, or beneficial interest. The lender acquires title insurance
protecting the lender's interest up to $80,000. But the purchaser's
down payment of $20,000 is not covered.
What
if some matter arises affecting the past ownership of the property?
The title insurance company would defend and protect the interest
of the lender. The purchaser, however, would have to assume the
financial burden of his or her own legal defense. If the defense
is not successful, the result could be a total loss of title.
The
title insurance company pays the lender's loss and is entitled to
take an assignment of the borrower's debt. The purchaser loses the
down payment, other equity in the property that may have accumulated,
and the property. And the balance on the note is still due!
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Title
insurance is issued after a careful examination of copies of the
public records. But even the most thorough search cannot absolutely
assure that no title hazards are present, despite the knowledge
and experience of professional title examiners. In addition to matters
shown by public records, other title problems may exist that cannot
be disclosed in a search.
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Here
are just a few of the most common hidden risks that can cause loss
of title or create an encumbrance on title:
False impersonation of the true owner of the property
Forged deeds, releases or wills
Undisclosed or missing heirs
Instruments executed under invalid or expired power of attorney
Mistakes in recording legal documents
Misinterpretations of wills
Deeds by persons of unsound mind
Deeds by minors
Deeds by persons supposedly single, but in fact married
Liens for unpaid estate, inheritance, income or gift taxes
Fraud
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Title
insurance will pay for defending against any lawsuit attacking the
title as insured, and will either clear up title problems or pay
the insured's losses. For a one-time premium, an owner's title insurance
policy remains in effect as long as the insured, or the insured's
heirs, retain an interest in the property, or have any obligations
under a warranty in any conveyance of it. Owner's title insurance,
issued simultaneously with a loan policy, is the best title insurance
value a property owner can get.
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The
peace of mind in knowing that the investment you've made in your
home is a safe one.
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