The title insurance business is an indispensable component of the real estate mortgage finance business.
Unlike a life insurance or property and casualty company; which will assume a risk in return for a premium, the title insurance company and its agent will work with the parties to eliminate all known risks prior to completing the transaction. This process of risk elimination is one of the most important services a title insurance company and its agents provide. A buyer or a mortgage lender needs to know that the seller or borrower is telling them the truth about what they own. Lenders and their investors need to know that they have a legally enforceable mortgage. A policy of title insurance eliminates many financial and legal risks inherent in even the simplest real estate transaction. After all, whether the property is someone's home, one that a bank has lent hundreds of thousands of dollars on, or a vacant piece of investment property, buyers and lenders want the benefit of their purchase or loan. They don't want to be tied up in court having to prove what they purchased, even if the title insurance company ultimately pays to cure the problem.
In order to discover all potential problems, title insurance companies and agents undertake a thorough search and examination of all relevant public records before the closing. All identified matters are then reviewed and those judged relevant are compiled into a report called a commitment to insure. The commitment serves as a basis for closing and completing the transfer of the real estate interest. When the closing is complete, the entire search and examination process is extended by the title company and policies of title insurance, effective as of the closing date, are issued to the buyer and mortgage lender.
In order to provide faster and more accurate service and reduce operating expenses, many title insurance companies and agents combine all the different public records indices that must be searched into one index called a title plant. This privately owned title plant is updated daily with purchased copies of all information recorded in the many different public records.
Most Michigan title companies and their agents use privately owned title plants and not the indices in the Register of Deeds offices.
Title insurance companies and agents often act as a neutral third party settlement facilitator in a real estate transaction. The buyer, seller and lender all benefit when an impartial third party receives money; records documents and disburses sale and loan proceeds according to instructions agreed upon by all concerned. A settlement facilitator allows different parts of the transaction to happen simultaneously rather than sequentially, thereby speeding up the closing process -- the buyer moves in sooner and the sellers get their money faster.
The title insurance company pays for any loss caused by errors it makes in searching the public records or in interpreting what it has found. It also will pay any attorney fees it incurs in defending the title. There are also many risks such as fraud and forgery which are covered by a title policy; even though in many circumstances these risks may not be disclosed by even the most thorough search and examination of the title. Generally, the policies remain in force for as long as the insured owns the real estate interest covered in the policy and certain aspects of the coverage continue beyond ownership. All these coverages, in some instances, may be limited by other provisions in the policy.
This entire comprehensive list of services and benefits is provided for a modest one-time premium and closing fee. Most of the fees collected cover the costs of eliminating risks. Only a small portion is attributable to insurance losses. The Michigan Department of Insurance regulates both the policy terms and the insurance premiums.
By providing a standardized product that meets the needs of the real estate community at a fair price, the members of the Michigan Land Title Association serve to enable all the commerce that takes place in the real estate business to be conducted quickly, efficiently and profitably for all concerned.
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