As a real estate buyer, whether you have purchased a condo, townhouse, or a single family house, you don"t want to worry about having to pay a bill left by the previous owner. You"d rather focus on buying decorations, appliance, and furniture for your new property. However, there are things much worse than having to pay an unpaid bill by the previous owner; you can even lose your new home and money because of a certain issue about the property that happened few years or decades ago. You might be confident that it won"t happen to you, but you can never be 100% sure. Title Insurance Protects You from previous title defects. This article will explain the benefits further
Role of Title Insurance
In a typical real estate transaction, after you accepted an offer on a home, a title insurance company will be hired to research the records of the property"s title. They have to make sure that the title has no defects, claims, or any issues. Unfortunately, there are some situations where there are problems such as a lien against the property or a challenge to the title that the search failed to uncover. Sometimes, a search can"t see those issues because it is a deliberate fraud or the lien was not recorded properly in the county records.
Due to those circumstances, title insurance is needed to cover such situations. Issuing of title insurance is part of the closing process of a real estate sales transaction. If you buy the house through a mortgage, you are required to get the lender"s policy to protect the mortgage company. However, it doesn"t protect the buyer. As a buyer, you have to get an owner"s title insurance policy to protect your real estate investment.
In some states, it"s the buyer who pays for the lender"s policy as it is a mortgage requirement. For owner"s policy, sometimes, the seller will be the one to initiate the title search to show that the property doesn"t have any title issues. The owner"s policy provides lifetime coverage and even extends to his/her heirs as long as the owner won"t sell the property.
Coverage of Owner"s Policy
- Deliberate fraud
- Missed easements or rights of way
- A missing heir who claims the property
- Child support liens
- Unpaid property taxes
- Unpaid mortgages
Sometimes, people say that since title insurance claims are few compared to the property of casualty claims, title insurance is not needed. Although the claims are indeed few, this doesn"t mean that owner"s insurance is not needed. The main reason for title insurance is to prevent claims. Title companies spend a lot of their revenues in the title search process. It takes time for real estate attorneys to go through records to make sure that the title has no defects. Title insurance fee is a small price to pay for the peace of mind that your investment is protected in case of a problem in a title arises.
Example of Title Insurance Claims
There was a case where a Florida couple bought a house from their landlord. The previous owner purchased the property through a mortgage. However, the title company missed the lien. The lender then paid the landlord instead of the lien. Although the homeowners made their payments, their home will still be auctioned. Since the Florida couple got an owner"s title policy, the company paid the lien, and they kept their home.
Although this is just one of the few instances where there is a claim for title insurance, this case shows the importance of title insurance and how owners can be protected.
Don"t take a risk. It"s not wise to play a guessing game when a huge amount of investment is involved.