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Understanding title insurance in Indiana

On Behalf of | Aug 19, 2022 | Real Estate

One of the least understood aspects of any real estate transaction is “title insurance.” Virtually every entity that makes a loan to enable the purchase of a residence requires the buyer to purchase a policy of “lender’s title insurance.” The borrower is required to pay the premium for the policy; the premium is a one-time charge that varies with the amount of the loan. The buyer also has the option of buying a policy of “owner’s title insurance.” Both types of policies provide protection against defects in the title to the property being purchased.

Understanding the “chain of title”

Unlike a car or dish washer or television, a tract of land cannot be physically possessed by the owner. Instead, ownership is proved by making a public record of changes in the ownership status. This record is maintained in every county by the register of deeds. Any transaction that affects the ownership of the property is recorded by filing the document with the recorder’s office. This filing requirement is used to disclose any change in the owner of the property and notify the public of any liens against the property.

The list of transactions affecting the property is called the “chain of title,” and any omission in this list is usually referred to as a defect in title. Because establishing and maintaining an accurate and complete chain of title is the work of human beings, mistakes occasionally happen. For this reason, title insurance was established to protect lenders and buyers against unknown defects in the chain of title.

Protections provided by an Owner’s policy

A lender’s policy of title insurance protects the lender’s interest in the property, that is, the amount of the loan secured by the mortgage. An owner’s policy insures the title as long as the beneficiary owns the property. The most common sources of title defects are:

  • Unpaid mortgages
  • Unpaid property taxes
  • Child support liens
  • Missing heirs who could claim the property belongs to them
  • Missed easements or rights of way that could limit your use of the property

A title insurance policy will pay the cost of curing the defect in the title. That cost could be paying off a lien or pursuing a quiet title action to eliminate the defect.

Valuable advice from a real estate lawyer

Anyone who is acquiring a significant interest in a piece of real property may wish to explore the wisdom of purchasing an owner’s or lender’s title insurance policy. The advice of a knowledgeable real estate attorney may help in making this decision or choosing the proper type of policy.

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