Right around the time that buyers are reviewing their estimated closing costs when making an offer on a property is when they ask why they need to purchase title insurance. Let’s face it. We ALL want to save money where we can and we begin to question what we really need versus what we would like to have but can do without.
What is Title Insurance?
It is insurance that protects the homeowner from having to pay legal fees and claims for matters that were not discovered during the title search, such as back taxes, compensation to missing heirs, fraudulent or forged signature on the deed.
Who is covered by Title Insurance?
There are 2 types of policies:
Lender’s Title Insurance Policy: The mortgage lender often requires you purchase title insurance to protect their mortgage. This coverage does NOT protect you as the owner.
Owner’s Title Insurance Policy: This policy protects you as the owner and provides assurance that your title insurance company will stand behind you monetarily and with legal defense if a covered title problem arises after the purchase of your home.
Here are some common (or not so common) issues that owner’s title insurance may protect you from:
Fraud and Forgery: Individuals involved in real estate fraud and forgery can be clever and persistent, which can spell trouble for your home purchase.
Illegal Deeds: A prior deed by an unauthorized individual, on behalf of a corporate seller, a person of unsound mind, or who reports being single when actually married can affect the ownership of a property.
Unknown Easements: An unknown easement may prohibit you from using your property as you like. In addition, other parties can leave expensive liens against your title.
Undiscovered Encumbrances: Unknown restrictions or covenants can limit the use of your property.
Foreclosures: Mistakes in a foreclosure in the ownership history of the property can leave expensive liens against your title.
Errors: Mis-indexing in the public records can cause hidden liens or undetected interests of others. These liens and interests can be costly to correct.
Conflicting Wills: Conflicts over a will from a deceased former owner can lead to costly legal disputes challenging your home ownership.
While the purpose of the actual title search is designed to identify all possible hurdles, these are not only caught in large part because it can only search public records. Some of the largest issues regarding title have to do when property is passed incorrectly upon the death of an owner. This can happen if the required inheritance tax wasn’t paid, or if their are unknown heirs that later come to make a claim on the property.
It is VERY important to understand and read the title binder and insurance declarations before you accept the title and property transfer. Although it is uncommon, there are incidents where the title insurance will note a known issue and still issue the policy with the known issue excepted from coverage. You do NOT want to settle on a property that has a known title issue. All issues should be sorted and negotiated BEFORE settlement.
Questions regarding title insurance and title searches? Call Gina at 717.963.0016 or email firstname.lastname@example.org.