HOME BUYERS FAIR : Title Insurance Makes Certain Your Home Remains Yours : Guarantee: Having policy assures buyer that the seller actually owns the property and that there are no clouds on the title.

If the American dream is owning your own home, the American nightmare must be finding out that your home might not really be yours--because whoever you bought it from had no legal right to sell it.

Fortunately such a frightening scenario rarely goes beyond the realm of bad dreams--thanks to title insurance.

Title insurance, said attorney Rita Stein of Mineola, N.Y., is a guarantee that the person selling the property you are purchasing has a right to sell that property . . . and the property will not be lost and your investment dissipated by what is called “a cloud on the title.”

Such “clouds” include conflicting claims of ownership between the seller and a third party arising from such things as inheritance disputes, an outstanding mortgage against the property or a judgment against the former owner. All can rain down on the buyer, who was not a party to the past disputes.

Title insurance shields the buyer in two ways, Stein says. First, the title company conducts a thorough records search before it will issue a title policy, looking for things such as outstanding mortgages, unpaid taxes or judgments against the seller.

If undiscovered, such items can turn into legal time bombs at any time--perhaps years--down the road. Should an old claim against the property emerge after the buyer has taken possession, the title company guarantees legal defense for the buyer at no extra cost.

The title insurance process begins before the closing, usually when buyer and seller enter into a contract. At that time, says Karen Schwartz, production manager for TRW Real Estate Loan Services, of White Plains, N.Y., the buyer’s attorney arranges for a title search, to be followed by the issuance of a title insurance policy.

Title insurance is not usually required by law, but lenders demand it. “Banks absolutely require title insurance,” Schwartz said. “They will not issue a mortgage without one,” nor will savings institutions, mortgage bankers or loan companies.

For the title search, said Schwartz, “we send out examiners to check for mortgages, judgments, liens and the like. We make sure all taxes are paid up to date, the survey of the property is up to date and there is a valid certificate of occupancy.”

If other local governmental fees or permits are involved, the title company ensures that they are all in order.

Then the title company then issues a report of its findings. Once any outstanding problems have been cleared up, it issues the policy, upon payment by the buyer of all required fees.

Title insurance is not cheap. Costs vary, depending on the property’s purchase price, the size of the mortgage and any applicable local fees, Schwartz says.

For example, title insurance on a $200,000 home in Southern California with a $150,000 mortgage costs $1,119--a $895 mortgage charge, which insures the lender’s investment, plus a $224 fee charge--the portion of the policy protecting the buyer’s investment.

For an additional premium, title insurance, just like fire insurance, can be upgraded to insure the buyer up to the replacement cost of the home--what it would actually cost to buy the same house, not just the original purchase price. Stein said that most home buyers don’t upgrade their title insurance, and most attorneys do not push them to do so.

Basic title insurance procedures apply equally, Stein says, whether a property is a single-family house or an apartment-style condominium.

Some cautious attorneys may urge their clients to leave nothing to chance and get their own title insurance.

Lenders require title insurance, Schwartz said, whenever money is loaned with property as security, whether for the basic mortgage or a second mortgage or home equity loan--meaning a new title search each time.

Homeowners can save money if they use the same title company the second time around--the company doesn’t have to go all the way back and do a full records search, but can just update the earlier search.

Stein says someone buying a property without a lender should still get title insurance, because it is their own property they are protecting.

Even though substantial old claims against a property are relatively rare, Stein says, “I don’t know any attorney who would not recommend that someone get title insurance.

Schwartz agrees, warning that without title insurance, “if any problems with the title do come up, you are liable--not the former owner--because you are now the title holder of that property.”

BUYER’S BEFORE-CLOSING CHECKLIST --Homeowner’s insurance --Flood insurance (if required) --Water meter reading --Electric and gas service --Fuel supplier --Newspaper delivery --Telephone, cable --Packing --Garage sale --Moving companies --Change-of-address cards --Last-minute walk-through

Source: Used with permission: “The Complete Homebuyer’s Kit,” Edith Lank, 1989 by Longman Group USA Inc. Published by Longman Financial Services Publishiing, a division of Longman Financial Services Institute. All rights reserved.