Buying a home is a learning process. You’ll hear fun, new acronyms, you’ll discover new words to add to your real estate vocabulary, and you’ll crunch financials using math equations that you probably haven’t seen since 8th grade. And, if you aren’t already familiar, you will learn about title insurance.
What is title insurance? A title is an individual’s legal right to ownership and possession of land. Title insurance is the policy that helps protect your ownership rights against possible claims. Here are a few things that you should know about title insurance.
First and foremost, if you finance the purchase of your home, most lenders will require a lender’s title insurance policy. This type of policy only insures the lender to the extent of their outstanding balance on the loan. Lenders require a title insurance policy because they need to ensure that their investment is protected.
Outside of a lender’s policy, it’s customary for owners to take out their own policy. One benefit of an owner’s policy is that it lasts for as long as you or your heirs have an interest in the property. Additionally, the policy often covers the full purchase price. An owner’s policy, when necessary, can help pay for the defense against an attack on the title and pay any/all valid claims.
Understanding the difference between a title search and title insurance will help clarify the benefits of a title insurance policy. A title “search” occurs before settlement. A title insurance policy protects you after settlement. Title insurance can protect you against some of the following problems (which may or may not show up in the initial title “search”); forged deeds or releases, instruments executed under fabricated or expired power of attorney, deeds delivered after the death, with or without consent of the grantor or grantee, deeds by minors, defunct corporations, bigamous couples, or persons of unsound mind, missing heirs, misinterpretation of wills, mistakes in indexing or recording of legal documents or tax records, inadequate property descriptions, undiscovered easements, prior liens that have not been released, duress, forgery, fraud in execution of instruments, and more. Title insurance gives the purchaser peace of mind, knowing that he is protected against these claims if they arise weeks, months, or years after closing.
Some title insurance policies also offer owner protection against losses incurred. Extended coverage for losses caused by: zoning violations, subdivision law violations, improvements that encroach into an easement, building permit violations, covenants, conditions, and restrictions, damage to your house caused from someone with easement rights, or even someone refusing to buy your land because your neighbor’s structures are on your land.
Ultimately, title insurance offers a lot of protection that you may not even realize is necessary. Professionals in the title search industry will exhaust all of their resources to best protect you on the front end; however, there may be unforeseen issues that require insurance above and beyond a preliminary search. Hopefully this overview gives you some insight on to why it’s important and the benefits of title insurance. If you have any further questions, feel free to post them here or be sure to reach out to a title company of your choosing.