Why a Lender Requires a Title Insurance Policy
Individual title insurance policies are intended to protect an owner of real estate, as well as a lender with a mortgage on the property, contrary to damages or losses that arise due to sudden encumbrances on the deed, such as title defects and liens, as stated by the California Department of Insurance. A lender can determine the extent of coverage it believes is required. This includes the forms of encumbrances shielded through a title insurance coverage. Common encumbrances that aren’t covered include mineral rights granted to another party.
Function
The role of title insurance, and the principal reason a lender demands it, would be to make sure that the lender is protected when a third party claims an interest in the real estate that wasn’t disclosed at the time the lender implemented a mortgage arrangement with the owner.
Characteristics
A lender demands title insurance since the coverage ensures that the lender’s attorney fees are compensated if it ought to clear a title-related defect, according to”Title Insurance: A Comprehensive Overview,” by James L. Gosdin. If the lender must pay money to correct a title issue, the title insurance insures this investment.
Time Frame
A lender requires that title insurance be set up before it finalizes a mortgage loan agreement. The lender won’t assume the probability of a potential title issue without knowing that the insurance is set up. The title insurance policy remains in force in favor of the lender provided that the mortgage loan is in drive.
Title Hunt
Before issuing a title insurance policy, a title company undertakes a title search, an examination of this title file of the real estate in question, which is maintained by the register of deeds. The research is intended to ascertain whether there are any problems or defects with the title.
Benefits
The principal benefit of title insurance to the lender and the home owner is that neither party encounters expenses at a future date because of title problems that weren’t detected at the time buyer bought the home and received a mortgage from the lender. This includes resolving an outstanding lien on the title as well as also the expenses connected with the procedure for removing the encumbrance. A lender’s potential losses cannot exceed the value of the mortgage loan associated with the real estate.