Title insurance which is also called owner’s policy is used to protect against potential problems or mistakes during a real estate transaction when doing the title search. It is purchased as a one-time fee and is valid as long as the owner or his heirs have an interest in the property. Title insurance is an important part of a real estate deal and without it, a transaction will not be allowed.
What Does Title Insurance Cover?
Title insurance will protect against claims specified in the insurance policy. Such claims are from defects like forgery, fraud, easements, encroachments, liens and improperly recorded documents. Title insurance will also protect against someone fraudulently claiming ownership interest on a property. Title insurance can protect the buyer from problems such as:
- Errors in deeds
- Outdated will
- Forgery of documents
- Mistakes during examination of records
- Undisclosed heirs
An owner’s policy will cover:
- Financial loss due to claims against the title
- Legal costs in case a covered claim has to be defended in court
- Payment of successful claims against the title
For lenders, the title insurance is knowns as a loan policy. A loan policy will usually be of an amount equal to the loan and it protects the lenders in case a problem comes up with the title of the property. A loan policy, however, does not protect the buyer or the owner.
How is Title Insurance Different from other Policies?
A title insurance is different from other types of insurance since it focuses only on risk prevention rather than risk assumption. Thus, title insurance provides a great opportunity to protect against claims and losses in a real estate transaction. Furthermore, a title insurance is only charged one time at closing as compared to other types of insurances that require a monthly or quarterly payment.
Why is Title Insurance Important?
Nobody wants to deal with unpleasant surprises after a real estate transaction is closed especially when you are dealing with large sums of money. In extreme cases, a seller may be trying to sell a property they don’t even own and even though such cases are rare, a title insurance can come in handy if something like this happens. Another example is when the seller is trying to sell a house that was co-purchased with someone else and they are no longer on talking terms anymore, but a signature is required to make the sale legal. Or a seller might be selling an inherited house under an outdated will and a recent will might make someone else the new owner. Having a title insurance in place makes sure the buyer doesn’t lose the home or money in cases any of this happens.
Buying a Title Insurance
Who pays for the insurance usually depends on how a transaction was negotiated. In most cases, the buyer will pay for the lender’s title insurance cost and the seller pays for the owner’s policy. In some cases, however, the buyer will have to pay for both the owner’s policy as well as the loan policy. A clear title is required on closing day along with owner’s policy and loan policy in order for a real estate transaction to go through.
The Federal Citizen Information Center website hosts detailed advice on title coverage best practices curated by the Department of Housing and Urban Development. The industry is full of joint ventures between insurance companies, real estate agencies and lenders that can lead to significantly higher rates for the end user if they are not knowledgeable of the realistic costs associated with buying a title insurance. For more information on title insurance and coverage, contact our professional real estate agents today!