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Why do I need Title Insurance? Why does my lender require Title
Insurance?
To protect your real estate investment. Not only do you want owner's
protection, but the lender will also require a loan policy of title
insurance.
The loan policy provides 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. It 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.
This can be purchased for a nominal one-time fee and issued at the same
time as the loan policy.
Example
If the lender has title insurance protection and the owner does not,
what is your possible loss?
Assume some real estate was purchased for $100,000. A down payment of
$20,000 is made, and a lender holds an $80,000 mortgage lien. 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.
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