What is Title Insurance & Why Do You Need It?
If you’re like most people, the term “title insurance” probably doesn’t mean much to you. And that’s okay – it’s not a topic that comes up often in day-to-day conversation. But when it comes time to buy a house, insurance is something you definitely need to know about. In this blog post, we’ll explain what title insurance is and why it’s important for you to have when buying a home.
What is Title Insurance?
When you are purchasing a home, one of the most important parts of the process is obtaining your title. This title is an official document that confirms you are the legal owner of the house. But what happens if there are finacial or legal problems with the sale of your house that you were unaware of? This is where insurance comes in. It helps to protects the buyer (and lender if there is one) from any financial loss that could occur due to title defects, liens, or other title issues before you bought your house. If you are in the market for a new home, then title insurance is a must!
How Does Title Insurance Work?
This type of insurance is a policy that helps protect buyers and lenders if there are problems with the title of the home. It can cover things like unpaid taxes, liens, or conflicts in wills.
A wide range of scenarios may arise and threaten your legal ownership of a property, rendering the title “bad” – from violations to disputes. For instance, after buying a home, it could be uncovered that the previous owner did not possess any valid entitlement or that someone else is contesting their claim over the asset. This type of insurance offers financial protection from title-related issues that are unexpected or unknown during the purchase of a property. It also helps ease concerns for buyers and lenders because insurance will help protect against title disputes in the future.
What Does This Type of Insurance Cover?
There are two types of insurance you can obtain when it comes to your title: lender’s title insurance or owner’s title insurance. Both provide important protections for different participants in a real estate transaction, and it’s important to be able to distinguish between the two and what they cover.
Lender’s Title Insurance Policy
A lender will always require the borrower to have an insurance policy before they can obtain a home loan
A lender’s title policy serves the same purpose as an owner’s policy – to protect against potential losses in case of a seller not having legal rights over titled property. The loan amount is safeguarded up to its full value. However only the lender has their interests covered by this type of insurance. If you end up saddled with back taxes and aren’t personally insured, a lender’s policy won’t protect you, but an owner’s insurance policy will.
Owner’s Title Insurance Policy
Owner’s title insurance policies are not required, but they can help protect you if something goes wrong. They can help protect home buyers from common risks like:
- Undisclosed easedments or other agreements that may limit the usage or reduce the value of the property
- Conflicting ownership claims like will complications and other similar disputes
- Outright fraud or forgery
- Outstanding lawsuits, liens, and other encumbrances against the property that may invalidate the seller’s legal claim
- Erroneous or flawed public records, including mistakes as simple as incorrect signatures
While obtaining an owner’s title policy is not mandatory, it can offer an extra layer of protection and bring much-needed peace of mind to buyers.
Alternative to A Title Policy: Warranty of Title
Most of the time, when you buy a house, it comes with something called a warranty of title. This means that no one else has claim to the house. But if you buy a house from an estate sale, auction or from someone who is not the owner, then it may not come with this warranty. In this case, you can get something called a warranty of title insurance policy to make sure you are safe and that no one else has claim to your new home.
Do You Really Need Insurance?
Although lender’s title insurance is almost always required, an owner’s policy is optional. It’s wise to consider insurance if you are worried about potential title issues. If you’re not sure, speak with a title company or real estate attorney who can help assess the risks and advise on how title insurance could benefit you. In any case, insurance is an invaluable tool that can offer financial protection from title-related issues.
The insurance policy you choose should reflect your particular title needs and provide the right level of protection. To make sure you’re adequately protected from title issues, it can be beneficial to consult with a title professional who will work with you to assess your title risks and create a title policy that works for you.
This insurance protects the homeowner for as long as they own the property. But if you’re not able to cover these unexpected costs, then you could be responsible for a lot more than you bargained for. Unfortunately, if you fail to make the new payments due, your home can become property of a creditor through no fault of yours. Similarly, any issues with the chain of title will leave you without cover and can swiftly transform your dream abode into an unappealing nightmare. Having an insurance policy in place will provide you with the sense of security you need to make your home buying process as stress-free and smooth as possible.
Making Sure You Have Insurance
While I am not an insurance agent, I do understand the importance of ensuring your title is properly insured. When you work with us to purchase your home, we can help connect you with the right agents or lenders to help you get the insurance coverage you need. Insurance is an important part of any real estate transaction and should not be overlooked! If you are looking to purchase a home or have any questions about the home buying process during any stage, we would be happy to help!