Introduction
Buying real estate can be a thrilling experience but complex as well. With mortgages, inspections, and negotiations, it is quite easy to overlook one key detail: title insurance. Most buyers have no idea what it is until the day they sit at the closing table, but title insurance actually ends up playing a key role in safeguarding your ownership rights and making your transaction smoother.
So what is title insurance, and why do people need it? How does it relate to the process of buying a home? Let’s take it apart.
What Is A Property Title?
In order to comprehend title insurance, one needs to know what a title is. A property title refers to a legal document that confirms ownership of a property. This document includes information regarding:
- Current ownership rights
- Liens or obligations tying up the property
- Easements (an opportunity to enter, such as utility companies)
- Legal limitations
Briefly speaking, the title will reveal whether there is legitimate power for the seller to pass ownership to you.
Why Are Title Issues So Prevalent?
If real estate transactions are always straightforward and simple, there would be no problem. Unfortunately, that is not the case. One of the most serious title issues that can occur includes:
- Unpaid property taxes or creditor placed liens.
- Mistakes in public record keeping by clerks.
- Cases of fraud, such as counterfeit documents.
- Previous heirs who were not disclosed who assert their right after a conveyance.
- Disputes over boundaries with neighbors.
Take, for instance, a situation where you buy your dream house, and years down the line, discover a bank lien, or someone claiming to be the true heir. With no protection at all, you may be subjected to expensive lawyer charges, and end up losing your home.
What Title Insurance Covers
Title insurance protects both lenders and buyers from risks regarding ownership. That is to say you cannot be contested, or removed, of clear rights in real estate property that you purchased. There are generally two kinds of title insurance:
1. Lender’s Title Insurance
- Most lending mortgage companies require it.
- This safeguards the lender’s investment in the property.
- The insurance shields that the lien of the lender is valid and can be enforced.
2. Owner’s Title Insurance
- It is optional but most advisable.
- It insures the rights of the buyer’s ownership in the property.
- It covers attorney fees if someone attempts to assert ownership of property and pays you back for losses due to the title defects.
How Title Insurance Functions in a Transaction
A title search by an attorney or title company is the initial step in a transaction. The attorney or title company will search public records to determine if there are any problems with the history of ownership for the property. Any issues that exist are dealt with prior to closing.
Once the title search has been finalized, then is when the buyer and lender can then buy title insurance policies. In contrast to all the other forms of insurance that call for monthly or yearly premium payments, title insurance has a single payment – at closing.
The title insurance remains in good standing as long as you retain the property, and even longer in some instances for subsequent owners.
The Perks of Title Insurance
Here are a few reasons your title insurance is definitely worth the investment.
1. Legal Protection
If a previous owner of your property comes back with a claim of debt, or a remote heir steps forward and asserts ownership, your title insurance will pay to defend in your favor of ownership, or to compensate you for any settlement made prior to case disposition.
2. Financial Protection
If you do not have title insurance, you are probably going to lose your property and your money without the comfort of any reimbursement. Title insurance provides you reimbursement for your ownership controversy, along with reimbursement for the worth of the property.
3. Peace of Mind
There is a lot of apprehension going into buying a new real property. Title insurance will give you some peace that your ownership and the ownership itself is safe and unchallenged.
4. Heir Protection
In certain cases, the title insurance coverage still goes to any lawful heirs, thereby carrying protection to the property ownership in family.
Cost of Title Insurance
The title insurance fees vary by area and are based on the value of the property – 0.5% – 1% of the selling price. To put it another way, if the property is $200,000 the title insurance fee will be between $1,000 – $2,000.
Although that added cost may seem high in closing fees the cost will be low for the potential cost of loss of property or litigation.
Common Misconceptions
- “I don’t need it if the title search came back clean.”
Title searches are thorough but not infallible. If there are problems lurking under the surface, they may appear years later.
- “It’s just another fee that lenders charge to buyers.”
The lender’s title insurance benefits the bank, and the owner’s title insurance benefits you. If you forgo it, it may not cover your investment.
- “It’s too expensive.”
Title insurance is a one-time fee that lasts for the life of ownership. It may be one of the better long-term protections in real estate, including your house.
Final Thoughts
Real estate deals are complex, and it’s tempting to slash corners in our quest for homeownership. However, title insurance is a place where you don’t want to penny-pinch. It might safeguard your legal rights, it might safeguard you from financial loss, and it might make sure you legally own the property that you are purchasing.
Think of it as a small fee to pay for the sake of peace of mind. With title insurance, you will not only purchase property; you will be safeguarding your investment and future.
So the next time you sit at the closing table and sign on the dotted line and look across at the top, “title insurance,” don’t consider it to be another charge. Consider it for what it is – perhaps one of the best financial investments that you will ever make.
