The decision to purchase a home is usually one of the biggest in our life. And you certainly would not want that any fraud occurs or there is any problem in gaining the title to that house. You may have taken a mortgage, which would be a massive loss if you fall prey to a fraud and do not get the title to the house. But, despite whatever you do, fraud might occur. You cannot stop buying a home; you cannot stop fraud. But you can purchase title insurance- your savior from all such frauds!
What Is Title?
The title to the property is the evidence that the owner has the lawful possession of that property. On purchase, the seller transfers the title to that property to the buyer.
Also, the title companies perform a search on the public records. They try to find if there are any claims or liens on the property. Some examples that can make your title ‘dirty’ are erroneous surveys, unresolved building code violations, etc.
Moreover, here is a list of hazards that can tarnish your title:
- Another party owns it
- Flawed records
- Signatures on documents are incorrect, or if there is any forgery or even fraud
- Judgments against the property like liens and outstanding lawsuits
- Unrecorded easements
You need to take care of all such things before you close the deal on any property.
What Is Title Insurance?
This is as simple as it sounds; it insures your title.
But why do you need it?
Well, however, the title companies run a check on public records. But no search is infallible. They might leave something, and you might have to suffer due to that.
So, you buy this insurance to safeguard yourself against anything that the title company guys miss, which can ‘dirty’ your title. After all, once you buy the property, only to find out that the title to the property is dirty, you cannot do anything but repent.
What Are The Types Of Title Insurance?
There exist two types of this policy- owners, and lenders.
Let’s see both of them:
#1: Lender’s insurance
Your lender, the one who lends you money for buying the house, is in danger if the title is ‘dirty.’ So, to protect his investment, most lenders require you, the buyer, to buy the lender’s title insurance. This protects the lender’s investment.
But this policy only protects the lender against the loss, and you are still in danger. And for the same, we also have owner’s insurance.
#2: Owners Insurance
The seller buys the owner’s insurance policy for the buyer. It safeguards the right of the buyer and covers him in case of a defective title. Though this coverage is optional, it is highly recommended to have one.
What Is The Difference Between Other Insurance Policies And Title Insurance?
This is a fun fact. There is an essential difference between other policies and title policies. Other policies secure you from events in the future like, there may be a flood in the future, or a fire might occur. But title policy secures you from the circumstances that might have taken place in the past, like a lien or a building code violation.
So, in simple words, other insurance policies cover the future while this policy covers the past.
How To Purchase A Title Insurance?
This policy is purchased at the time of closing. The Escrow or the closing agent initiates the insurance process.
You can purchase this insurance from the four significant underwriters of this policy. They are:
- Fidelity National Financial
- Old Republic National Title Insurance Company
- Stewart Title Guarantee Company
- First American Title Insurance Company
There are a few regional underwriters as well. You can choose them as well.
This insurance is moderately priced. The cost ranges between $500 to $3,500. What you will pay depends on several factors like the state you live in, the buying price of your home, and the insurance provider you choose.
Many times, you simultaneously buy both owner’s and lender’s insurance policies. This simple step protects both the parties optimally.
Pro Tip: Your lender, real estate agent, or lawyer might suggest a policy underwriter to you. But do not settle with one until you comparison shop.
What Are The Risks If You Do Not Have A Title Insurance?
Indeed, you can end up in a mess if you do not have insurance. Below are some examples of how things can go wrong when the lender or owner does not have insurance.
Say you have been looking for your home sweet home, and finally, you do close a deal. But soon after find out that there are pending property taxes on the house from the previous owner.
Now you have two options- First, to pay the pending taxes out of your pocket. Or, second, lose your new home to the tax entity. Mostly, you would have to pay for the pending taxes if you do not have the owner’s insurance.
Say you have taken a mortgage for financing your home. But the house has unrecorded liens, unrecorded access rights, or other defects. All these are a danger to the investment of the lender or the bank.
But with lender’s insurance, their entire investment is safe. They get coverage of the total lending amount.
In A Nutshell…
This policy helps you be safe and secure when you make one of the most significant decisions of your life. Many things could be wrong with the house of your dreams, and those can take you away from the title to your property. Thus, it is always better to be safe, for prevention is better than cure. And the best part is that this policy is mediocrely priced. And it is a one-time fee to last until you own the house or even have an interest in it!
So, this was all. We hope you liked the content and found it helpful. And if you have questions or suggestions, drop them in the comments section. We are all ears and reply ASAP!