Tuesday, December 5, 2023 / by Tim Elder
When you're buying a property, you're not just purchasing the physical land and structure; you're also acquiring legal rights to the property. This is where title insurance comes in. It's a crucial aspect of real estate transactions that can protect you from potential problems with the property's title. Let's break down what title insurance is and why it's important for homebuyers.
What is Title Insurance?
Title insurance is a policy that protects real estate owners and lenders against any property loss or damage they might experience because of liens, encumbrances, or defects in the title to the property. Essentially, it safeguards against any legal issues that might have occurred before you purchased the property.
There are two main types of title insurance:
- Owner’s Title Insurance: This protects the property owner if there are any issues with the title. It's a one-time fee paid at closing and lasts as long as you or your heirs have an interest in the property.
- Lender’s Title Insurance: This protects the lender's interest in your property until your mortgage is paid off or refinanced.
- Protection from Past Defects: Title insurance covers past title issues that might surface after you've purchased the property, such as claims of past heirs, forged transfers, or unknown liens.
- Peace of Mind: Having title insurance means that your right to the property is legally protected. If any covered title issue arises, the insurance company will manage the legal defense and cover any associated losses up to the amount of the policy.
- Requirement by Lenders: Most lenders require you to purchase lender’s title insurance as part of the mortgage process to protect their investment in your property.
What Does Title Insurance Cover?
Title insurance policies typically cover:
- Title defects due to forgery, fraud, or errors in public records.
- Liens against the property, like unpaid mortgages, child support liens, or tax liens.
- Encumbrances or Easements that were not disclosed in the title report or were unknown.
- Claims of Ownership by another party.
What Doesn't Title Insurance Cover?
Title insurance does not cover:
- Future disputes over property boundaries.
- Issues arising after the purchase date, such as new liens or mortgages.
- Policy exclusions stated in the title insurance agreement.
How Much Does It Cost?
The cost of title insurance varies depending on the purchase price of the property and the insurance provider. Typically, it's a one-time fee paid at closing.
While title insurance might seem like just another step in the complex process of buying a home, it plays a vital role in protecting your investment. By safeguarding against past title issues, it provides a significant layer of security for what is likely one of the most significant purchases of your life. Whether you’re a first-time homebuyer or a seasoned investor, understanding the importance of title insurance is crucial in making informed real estate decisions.