You would have come across the word “title insurance” in a property transaction, wouldn’t you? You may not be aware of what exactly it means, why it is necessary, and how it works, but here, we will let you know all the essential details about Title Insurance and why u need it.
What is Title Insurance?
Title insurance is a type of indemnity insurance. It is needed to protect the lender and the homebuyers from suffering a financial loss due to the defects found in the title of a property. It is helpful in various claims filed against a title, such as back taxes, liens, conflicting wills, etc.
Usually, at the time of financing, buying, or selling a property, a copy of the transaction, along with the details of the ownership of a property, is recorded in public archives.
There are two types of title insurance: Lender’s title insurance, in which the borrower buys the same to protect the lender, and owner’s title insurance, in which the seller pays to protect the buyer in the property.
Here are some of the things you need to know about title insurance:
- It is a one-time fee for getting insurance that covers administrative fees for conducting deep searches.
- Title insurance aims to investigate the data that can protect the concerned against any claims for past occurrences.
- Though the policy buyer must pay only once, the coverage lasts until you own the home.
- The real estate transactions must have a clear title to avoid getting liens for the property.
- A title insurance policy also covers the risks such as incorrect ownership, flawed records, fraudulent documents, etc.
- Unlike traditional insurance, which protects an individual against future incidences, title insurance protects the buyers and lenders against claims of the past.
How Title Insurance Works?
Title insurance is essential to fully prove the real estate transaction and avoid hassles regarding the ownership.
Here is how the title company works:
- The title company conducts a deep research on the title to determine any claims or liens of various types.
- A title search is done by examining the public records. They aim to find and confirm a property’s legal ownership.
- They examine whether there are any claims made on the property.
- They check whether any unresolved violations compromise the title of the property.
What is Lender’s Title Insurance?
When taking out a mortgage loan when purchasing a property, the lender needs a title insurance loan policy to protect themselves from fraud. A lender’s policy is always needed when issuing a mortgage loan.
The loan policy is as per the loan amount. It does not provide protection to the buyer.
All the lenders ask the borrower to buy a title insurance policy to remain safeguarded if the seller cannot transfer the title of ownership rights.
An issued policy guarantees that the title search is completed and the buyer can be assured.
What Does Lender’s Title Insurance Cover?
Lender’s title insurance includes coverage against:
- Unpaid property taxes
- Liens and lawsuits
- Undisclosed heirs
- Judgments
- Easements
- Encumbrances
- Fraud and forgery
- Public record errors
A lender’s title insurance policy does not cover unrelated equities, claims associated with fire and flood, weather damages, etc.
What is Owner’s Title Insurance?
The title company needs to search the public records to hunt for the details of the property ownership status.
The owner’s title insurance policy helps insure their ownership rights to the property. The owner’s title insurance is also necessary for making the title searches reliable.
Since the owner is also at risk of suffering a financial dent, it is vital to be mindful of seeking additional protection, such as getting an owner’s title insurance policy.
What Does Owner’s Title Insurance Cover?
Here is what Owner’s Title Insurance cover:
- Fraudulent activity
- Incorrectly filed deed
- Falsified deed information.
- Mortgage fraud
- Liens or debt filed against the property.
- Encroachments, such as a neighbor building a fence on your land, impact your property rights.
- Easements are when someone may claim rights to a part of your property.
What is Not Covered in Title Insurance?
Title insurance does not protect:
- The owners are against violating their property rights, like title problems, due to their actions.
- It does not protect when the government seizes private property for a public purpose.
- So, it does not protect you against issues created by you.
Is Title Insurance Necessary?
Buyers and lenders need title insurance to remain insured against title defects.
Having title insurance means eliminating the risk of a title defect. Imagine a situation where someone looks forward to buying a home but later finds out the seller has not paid the property taxes.
Without title insurance, this financial burden will land on the shoulders of the new owner. Either he will pay the outstanding property taxes or lose the home.
The owner’s policy is bought when closing the property deal. It aims to offer coverage to the homeowner. It is issued as per the real estate purchase amount. The owner’s policy protects the buyer completely against a title problem like:
- Errors or non-payment of deeds
- Undisclosed heirs
- Forgery
- Mistakes in records
Even the lender’s title insurance is vital to protect the banks and mortgage lenders from liens, unrecorded rights, and more defects. If there is a default or property title issue, the lender would be covered for the mortgage amount.
It is also necessary for real estate investors to ensure that a property does not have any title issues. Foreclosure homes usually have several issues. An owner’s title insurance can protect them from unforeseen claims.
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Wrapping up
Title insurance is essential to cover third-party claims on a property that remains absent in the title search after the deal closes.
A title claim can happen anytime, including when you have already owned the property. Sometimes you are unaware that someone else has a claim on the property, like an overlooked heir, etc.
So, hire a title company’s services and find any title defects that could affect your property rights. Most homebuyers do have a common concern about how much is title insurance. Title insurance generally costs around 0.5% to 1% of the total home sale price.
TitleBlu takes pride in being one of the most timely and efficient providers of title insurance services.
We provide unparalleled strategic advantages in our title insurance services thanks to our vast network that includes some of the nation’s leading underwriters.
Our goal is to ensure the closing of your title transactions is completed promptly and efficiently, protecting you and your home.
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