Title insurance is going to be a type of insurance that helps protect a homebuyer from financial loss sustained from any defects in a title to the property they would like to purchase. There are different types of title insurances available, though the most common will be lender’s title insurance, which will protect the lender if something goes wrong.
Owner’s title insurance can be paid by the seller to help protect some of the equity in the property.
Understanding Title Insurance
It is necessary to have a clear title when you enter into a real estate transaction. Title companies will spend that time doing a search on the title of the property to see whether there are any liens or additional claims on the title before a new one is issued to the new buyer. A title search is simple an examination of all the public records to help determine who legally owns that property. It will go further to see whether anyone else has claims on the property. it is possible that more than one person owns the property, a bank still has a lien on the property, or even a contractor placed a lien because they were not paid for some of the work they completed.
The buyer does not want to purchase a property that is not theirs outright. This is where the title company comes in. They can find any issues with the title and then the buyer can choose to have the seller fix it or they can walk away from the purchase of the home. The title insurance helps in case the title company misses something. It can protect the new homebuyer, and their lender against claims for past occurrences.
A basic owner’s title insurance policy will often help to cover the following types of hazards:
- Ownership in the property by someone else.
- The wrong signatures on the documents. This may include fraud or forgery.
- Flawed records that appear later.
- Restrictive covenants that will reduce the enjoyment or the property, such as an unrecorded easement.
- Encumbrances or judgments against the property, like an outstanding lien or lawsuit.
Types of Title Insurance
There are several types of title insurance that the homebuyer can choose to get. The two main types will be the owner’s title insurance and the lender’s title insurance. If you are getting a mortgage on the property, you will need to get a lender’s title insurance policy. This will help protect the lender if the seller was not legally able to transfer the title of ownership rights. If this is the policy on your title, remember that it is only there to protect the lender against a loss. Since these title searches are not infallible and it is possible that the owner could still have a risk of great financial loss, there is the possibility that they will need some additional protection. This is where the owner’s title insurance is available. The seller will often purchase this one and it provides protection to the buyer against defects in the title. It is optional, but it is smart to choose it.
Purchasing the Title Insurance
In most real estate transactions, a closing agent or escrow agent is going to help initiate the insurance process once the purchase agreement is done. There are several insurance underwriters for titles throughout the country. You can choose the one you would like to use, or go with the one the closing agent recommends. The cost of owner’s title insurance will vary based on the state you live in, the provider you decide to use, and the purchase price of the home. It is common for the policy to range in price from $500 to $3500. It is not uncommon for an owner’s policy and a lender’s policy to be required at the same time. This will guarantee that everyone gets the protection that they need. At closing, the parties will purchase the title insurance, which is given as a one-time fee in this situation. To prevent abuse, the Real Estate Settlement Procedures Act will prohibit the seller from requiring purchase from one specific title insurance carrier.
Risks of Not Having Title Insurance
It may seem tempting to avoid title insurance because of the costs. This is another fee that you will need to pay on top of your other closing costs and your down payment amount. If you are looking at another large bill, it may seem like a good deal to just kick it off and not pay for it at all. Without title insurance, you will be exposed to a significant amount of risk if the title does present a defect. Consider what it would be like if you were a homebuyer searching for the house of your dreams. But once you closed on it, you found that there were unpaid property taxes from the previous owner. Without the right title insurance, the homebuyer will need to handle all of those back taxes or they will lose the home. Title insurance will provide protection for the buyer for the length of time that they own the property.
The lender’s title insurance is important as well. This type of insurance is going to help cover banks and other lenders with problems to the home. This can include things like unrecorded liens, defects in the property, unrecorded access rights, or if the borrower defaults, the lender would be reimbursed for the amount of the mortgage. If you are an investor in the property, having the title insurance can help as well. This can help give you the peace of mind knowing that the property does not have a bad title and can keep you safe, while protecting your investment, along the way.
When you are searching for the best title insurance before purchasing a new home, you need to work with a company that knows how to dig deep and be by your side. At Sunnyside Title Agency, we are here to provide you with some of the best title insurance in the industry, giving home buyers the peace of mind knowing that their home is ready for them. Trust us to furnish your title insurance and take one more thing off your plate.