Learn more from Carlton Drumwright, Esq, on what title insurance is and how it differs from other types of insurance. Carlton is an attorney in Tennessee and oversees closings at 7 CLOSED Title offices in the Greater Nashville area.
The nature of title insurance is different from that of other types of insurance such as home, health, or auto. Traditional insurance is a contract to indemnify another for loss arising from some contingent event or act that occurs in the future, after the issuance of the policy. Title insurance is actually a title guaranty.
The distinction being that a title policy insures against loss arising from events that have already occurred at the time of issuance of the policy but may not yet be known.
Once a thorough search of the title to a property has been conducted and reviewed, the title insurance company issues a Commitment. The Commitment is a contract between the title insurance company and the proposed insured that represents the state of the title to the property and sets forth the terms and requirements upon which a Policy will be issued.
The Policy is the actual contract of insurance which is issued after closing that insures the accuracy of the title search against claims of title defects. It protects against superior claims of ownership and guarantees that the insured receives the title to real property for which they bargained.
In a purchase situation, there are generally two types of title insurance policies issued: a Lender’s Policy and an Owner’s Policy. If the purchaser is obtaining a loan to finance the purchase of the property, the lender will require the issuance of a Lender’s Policy listing itself as the beneficiary and providing coverage up to the amount of the loan. The Lender’s Policy does not cover the owner.
The Owner’s Policy covers the owner for loss arising from defects in title. Even though a Lender’s Policy has been issued it is still very important for the owner to have their own policy to cover their potential losses. For example, if a purchaser buys a $750,000 property and obtains a loan and mortgage for $500,000 of the purchase price, the Lender’s Policy will only cover the lender up to $500,000 should there be a successful title claim against the property. Without an Owner’s Policy, the owner could potentially lose their $250,000 equity plus the costs to defend the lawsuit. The Owner’s Policy will cover the owner up to the amount of the purchase price and will also cover attorney’s fees and the costs of defending the lawsuit.
Carlton Drumwright, Esq. is an Owner/Managing Attorney at CLOSED Title Nashville. He is a 1999 graduate of The Nashville School of Law (J.D.) and a 1994 graduate of Middle Tennessee State University (B.S.). A former Assistant District Attorney General for the 20th Judicial District of the State of Tennessee, Carlton has litigated several notable cases during the course of his legal career. In 2008, in the case of State v. Dailey, he secured a landmark decision from the Tennessee Supreme Court which resulted in a milestone interpretation of federal and state Constitutional law. Carlton has been a guest lecturer at The Nashville School of Law, has sat as a Special Judge for the Davidson County Courts, and has provided training to several Middle Tennessee real estate companies regarding contracts and real estate law. He has been a lecturer and consultant for Vanderbilt Law School’s Divorce This House collaborative law education program, which provides training to judges, divorce attorneys and real estate professionals regarding proper valuation and disposition of real property in divorces. He focuses his legal practice in the areas of residential and commercial real estate closings, §1031 tax deferred exchanges, contract law and business law.