Title insurance, as the name implies, insures or protects the owner from any financial loss as long as it is related to a significant purchase like a house. It is often known as risk prevention rather than being a risk assumption type of insurance.
An article contributed to by Robert Viggiano – 15 Years of experience in Title Insurance and Sunnyside Title Insurance President.
Title Insurance usually covers the previous history of the holder’s home and checks for any trouble spots that might damage the home’s value. It even highlights potential issues and makes the buyer know about it before purchasing the house.
Some potential defects and disputes covered in the policy include the following:
- Unsettled taxes or assessments
- Unreported damage in the property
- Forgeries in the chain of title
- Adverse ownership claims
- Financial liens against the house or property
- Error in title records
- Right-of-way issues
Why Do You Need It?
The abovementioned disputes are the very reason why one should consider having a Title Insurance. In case any of the above disputes happen and aren’t detected, it is in the hand of the new homeowner to create financial amends, which often cost them badly.
Moreover, the homebuyer is not the only one who can benefit from having the Title Insurance but as well as the mortgage lender. Every mortgage lender requires Title Insurance to guard themselves against potential home’s defects and disputes between the seller and the buyer. It protects the lender from suffering financial loss.
Without Title Insurance, the new homeowner is more likely at risk paying for any defects and disputes mentioned above and may lose a significant amount.
Title Insurance: How it works
The process of Title Insurance isn’t really that complicated. However, for you to understand how it works, you should need to understand first the title attached to the house. A house title is a very important document(s) that will prove the holder is the legal owner of the house in question. Moreover, a house title also must have a variety of information that proves the legality of the homeownership such as the following:
- Property abstract
- Encumbrances
- Liens
- Copy in a local government office
No potential homebuyers can have a home title unless the property is reviewed only by a reputable home title specialist to ensure that the house has no defect and disputes attached to it. Only with a cleared title, a homebuyer can securely and safely proceed on the completion of the purchase transaction. But again, they need to buy a Title Insurance in case something pops up in the future that wasn’t covered in the initial inspection.
Furthermore, once the title is secured and cleared, your real estate agent will be assisting the homebuyer in getting an insurance professional. So the home buyer can easily set up an escrow account for Title Insurance. If the escrow account is paid out, the Title Insurance can be purchased by the new homeowner for full protection.
The Cost of Title Insurance
Unlike common consumer insurance policies, usually, the Title Insurance process comes with a one-time-only charge. It doesn’t require the holder to pay the insurance a monthly bill for the protection. In some instances, the home buyer pays for their own title insurance, aside from the lender’s title insurance. However, homebuyers can opt to negotiate with their mortgage lender to settle for a new mortgage deal instead.
Furthermore, one should also take note that in some states, the government requires the home seller to pay for title insurance to ensure that the house is free from any disputes and defects. Title Insurance usually cost around $1,000. But in some cases, they charge Title Insurance amounting to 1% of the purchase price. Title Insurance cost varies by a state-to-state basis. You may contact your local insurance commissioner and ask for Title Insurance cost in your area before sealing the deal.
Types of Title Insurance
Technically, there are actually only two types of Title Insurance. First is the ‘Owner’s title insurance,’ and the second type is called the ‘Lender’s title insurance.’
Owner’s title insurance
Owner’s title insurance is also called the “Owner’s Policy.” This title insurance usually protects the buyer from any financial losses that may occur in the home purchase due to defect, or disputes, or any other financial problem. Moreover, the owner’s policy is needed to title insurance for the mortgage lender. The policy could amount to the total cost of the purchase price, which runs for as long as the new homeowner continues to own the house or transfer the property on a loved one.
Lender’s title insurance
This type of insurance policy is also called the “Loan Policy.” The policy guards the financial investment of the mortgage lender in the home and property. Similar to the ‘Owner’s title insurance policy,’ it is also issued with the same amount of the purchase price. However, any liability does dissipate as the new homeowner makes mortgage payments; the mortgage debt will decline.
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Interesting related article: “What is Insurance?”