Having gone through the tedious and rigorous process of searching your ideal home, making an offer, applying for a mortgage, closing the deal, and moving in, only to discover that someone somewhere has legal title to displace you from your property.
Fortunately, title insurance was formulated to protect you and your property from claims from old owners. It protects you from payment of financial damages in the event you are sued for back taxes or unpaid contractor work that occurred before you purchased the property. With this said, the owner’s title insurance isn’t compulsory, but it is a necessity especially when you consider the hazards particular to your case.
What Is title insurance in Real Estate?
The legitimate owner of a residence is established on the property deed, a document known as a “title”, which transfers the title from the seller into your name when you purchase a home.
Still, someone may come up with documentation claiming ownership of the same property, which is where the importance of this insurance comes to bear.
Homeowners and lenders can both be covered by this insurance in the event of a dispute and this process is put into motion when the title company you hire goes overland registry for any potential title difficulties, and it may also request a property survey to make sure the house is within its legal bounds. After which you’ll be given a title insurance policy upon the company’s certification that the title is indeed valid.
What Is covered by title insurance?
This insurance covers undisclosed property liens, past unpaid taxes, and the legal fees you’d incur if another party tried to claim ownership of your new home. Unlike homeowners insurance and other types of insurance, title insurance only covers events that happened before the policy was issued, such as unpaid property taxes from a prior owner 30 years ago. It will not take care of any new title issues that come after you become the owner.
Two types of title insurance vary by the purpose of the policy.
Why do you need insurance on a home’s title?
As a homeowner, you are covered by an owner’s title insurance policy, which safeguards your home investment by compensating you for any financial losses incurred as a result of a title defect. And if you are sued, the title insurance provider is responsible for defending your ownership rights.
The more you pay your monthly mortgage thereby increasing the equity in your property, your risks expand. And in the event of an early dispute on the title of the property, the lender will bear the financial brunt, but as time passes, your investment becomes increasingly at risk.
But if the claimant is proven to have a valid title and you have to vacate your property, the owner’s title insurance would cover the cost of buying a comparable home.
Title insurance for lenders
Lender’s title insurance covers the amount borrowed for the coverage of any problems with the property’s title, specifically covering the lender’s financial interest.
It is essential to note that your equity as a homeowner is not protected by the lender’s insurance, which would result in a loss for you if someone has a genuine claim to the property, yet your lender will be reimbursed.
Is it necessary for me to purchase this insurance?
You could ignore the chance of a title dispute if your home is brand new or was built within the last few years because there is a low probability of it having many previous owners. While older homes may have a more shady past, a newer home may still be exposed to other types of accusations.
For instance, other parties may have been granted the right to use the land on which your home was built in what is known as a property easement. Utility companies may have the authority to maintain an electricity pole or construct underground wires on a landowner’s property under certain circumstances.
Even though you own the property, someone else can legally utilize it and sue you if you deny them access.
This is why it is beneficial to run a title search to see whether there are any recorded easements, before closing the deal on the house.
The cost of this insurance
The average cost of title insurance per policy is between $500 and $3,500. Although, the price depends on the location of the home, the purchase price or loan amount, your credit score, and other considerations.
Yet unlike other types of insurance, this insurance requires only one payment, which is frequently included in your closing fees. Whether you acquire a lender’s title insurance or owner’s title insurance, the homebuyer is usually the one who pays for it. And if you can strike a good bargain, you might be able to persuade the seller to include the owner’s insurance in the purchase contract.
Notwithstanding concerted effort, you may not discover every detail concerning the history of your new property, which can lead to unpleasant shocks down the road. Financially, this insurance protects you from claims on your home that are not under your control. While lender’s title insurance is almost certainly necessary if you have a mortgage, you have the option of purchasing the owner’s title insurance to ensure your peace of mind.