Northeast Tennessee and Southwest Virginia Mortgage Lenders require their customers to obtain Lender Title Insurance when issuing a loan. This protects the Lender's interests in the property should a problem with the title arise. It does not protect the Buyer. The policy amount decreases as you pay down your loan and eventually disappears as the loan is paid off.
If you want protection against possible defects in your property title, you must purchase an Owner's Title Insurance. Owners Title Insurance is optional. If owner's coverage is secured at time of closing (simultaneously), the premium is less. It is a one-time fee and lasts as long as you have interest in the property. Only an Owner's Policy protects the Buyer should a covered title problem arise. Possible hidden title problems can include:
A title is the legal document of ownership for a property. Title companies perform a title search, which is an extensive search through legal documents to prove the person selling you property has legal claim to it. So why have Title Insurance when you've had a title search done? The search may have made an error, or it may have come across forged documents, which would pass the title search. Around six percent of all policies have a claim, so it is not as uncommon as some may think to have a claim.
You will have to have Title Insurance even if you refinance your mortgage. The mortgage lender wants insurance against a lien on the property superior to the lien they will place on the property at closing. A lien is a legal claim against a property usually because of debt. If you fail to pay your taxes or a contactor that performs work on your home, you could have a lien on your property.
In the event a superior lien is enforced against your property, the Title Insurance will pay the mortgage company the balance of the principal owed them over the life of a mortgage. If you purchase a home valued at $100,000 and put down 10 percent, then your title insurance will protect the amount owed to the bank ($90,000). As you pay off the equity, the bank is insured against only the remaining amount you owe. This means the insurance covers a depreciating amount over time.
An owner's policy protects the homeowner's equity investment. Of that $100,000 home you put down $10,000 in equity as down payment, you are covered for that amount, which increases year after year until the principal is paid off to the bank. You must secure individual policies to cover both the bank and yourself!
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