What is title insurance and why do you need it?
Summary
Title insurance is a type of insurance that protects you and your lender in the event that there are any issues with the title of the property you are buying.
When is title insurance purchased?
It is typically purchased at the time of closing on a property, which often takes place at a title company, an attorney’s office, or a real estate office.
If there’s a loan on the property, the lender will require title insurance as part of the loan agreement. This means that if there are any problems with the title to the property, the insurance will help to cover the costs of resolving the issue.
What protection does title insurance provide?
This type of insurance is important because it can help to protect you and your lender from any potential problems that might come up with the title of the property, such as a claim by another party. This could include things like missing heirs who might try to claim the property, mistakes in the public records, or fraud.
What does title insurance cost?
Title insurance is a one-time fee that property owners need to buy when they purchase a new home. It’s not an ongoing expense like some typical insurance policies, and it’s usually one of the most affordable types of insurance available.
The cost of title insurance is based on the purchase price of the property and the current market rate. There’s also an additional cost to record the new deed.
What types of title insurance are there?
There are two main types of title insurance policies: the Lenders’ policy and the Owners’ policy.
The Lenders’ policy is required for any mortgage company providing a loan, while the Owners’ policy protects the new property owner from any potential damages from errors in the ownership record of your home or property.
Do you really need title insurance?
Title insurance is crucial for a property buyer because it protects both you and your lender from the possibility that your seller doesn’t—or previous sellers didn’t—have free and clear ownership of the house and property and, therefore, can’t rightfully transfer full ownership to you.
In other words, title insurance protects you and your lender in case the seller doesn’t have full, legal ownership of the property. It can be helpful in ensuring that you don’t end up losing your money or the property after a sale.
What are the different types of title problems that might happen?
Some common types of issues are liens, easements, encumbrances, delinquent tax bills, judgments, and medical bills.
Other problems might include missing heirs, forged signatures, or incorrect information on the title deed.
Title insurance can help protect property owners from losing their investment in a property by providing insurance against these issues and many others.
These types of things are considered to be “clouds” or “defects” on the title, and can often be cleared up and removed before closing on a property. Sometimes the liens have been paid prior and haven’t been recorded and released.
Title companies take the risk by doing their due diligence. They search the public records to ensure the property is free and clear of issues that would carry forward onto you as the new owner.
How long do title insurance policies last?
The title insurance protects the homeowner for as long as they own the property.
Conclusion
The consequences of not purchasing the owner’s title policy can be dire.
Title insurance protects your investment in a property by providing coverage in the event of a problem with the title. Homebuyers and property investors should purchase title insurance to protect themselves from any unforeseen consequences that may occur after buying a property.
Should unpaid taxes or outstanding liens appear after closing on a property, its burden will fall upon you, the new owner.
Title insurance protects your large investment of purchasing a home or an interest in a property if there’s an issue that arises after the fact. It’s a small fee to pay for this peace of mind.
Answers to submitted questions:
If someone owns land and bought a title policy when they first purchased that land, then they decide to build a house on it later, do they need a new title insurance policy if they are not getting a loan to build it?
No, a new title insurance policy would not be necessary in this situation.
Does the typical closing on a home include an owner’s policy, or just a lender’s policy?
A typical closing for a the purchase of a home will include a lender’s police if there’s a mortgage.
Should you use a real estate broker to help you list or buy your properties? Read more here.