There are different kinds of insurance people buy for protection, including health, life, auto and homeowner's insurance. When you buy a home, there is a type of insurance that offers protection in case other people claim an interest in your property and helps assure that you will be able to resell the home without problems. This type of insurance is called "title insurance."
What Is Title Insurance?
Title insurance is a type of insurance that protects you by guaranteeing that you are getting title to the property free of any title problems. Title is your right to use and possess the property free from the claims of others. Common types of problems that title insurance protects you against include:
• Mistakes or omissions in deeds. For example, a prior deed may have an incorrect description of the property, or may be missing necessary information.
• Liens by contractors. If contractors did work for a prior owner and were not paid, they may have put a lien on the property. As a practical matter this affects your ability to sell the home since there's a "cloud" on the title.
• Liens for unpaid taxes. Prior owners may have failed to pay all property taxes, and a government entity may have placed a lien on the property.
• Missing or undisclosed heirs. For example, a previously undisclosed relative of a former owner may have a legal right to the property.
• Forged signatures on earlier deeds in your chain of title. For example, a husband may have forged his wife's signature on an earlier deed, making the transfer invalid.
In the event title to your home is challenged by someone, the title insurance company will pay the legal costs of defending you. It will also pay for losses resulting from a covered claim (up to the policy amount). In the event a claim occurs and you have no title insurance, it can be financially devastating and you could even lose your home.
Title insurance differs from other types in insurance in that it protects you from problems that occurred before the policy is issued. In contrast, auto, life, homeowner's and health insurance protects against losses that occur after the policy is issued.
Who Should Buy Title Insurance
Almost all lenders require title insurance to protect them against loss from claims other people make against your new home. Buyers of homes should also have title insurance (an "owner's policy"), since a lender's policy protects only the lender and not the buyer. The amount of title insurance you should have is usually for the full purchase price of the property (lenders generally need a policy only for the amount of the loan).
Before a title insurance company issues a policy, it will check public and other records for any problems with your title. This examination will reveal a chain of ownership of the property, any claims against the property, and the condition of the title. If any problems are found, the title company may require that they be eliminated before issuing a title insurance policy.
Who Pays The Premium
In some areas buyers pay the premium, while in other areas sellers typically pay the premium. There is no law requiring which party must pay the premium, and this could be a negotiating point between the seller and the buyer. The premium is usually a one-time payment made at the close of escrow.
• Get a “title search” as soon as possible. As noted above, a title search shows what rights other people claim in the property and helps make sure the seller can grant you clear title. Doing the title search early helps reveal problems sooner so they won’t jeopardize the deal after you invest a lot of time and money in it.
• When you receive your title insurance policy, review it to make sure it's accurate. Check the policy amount to make sure it is right, and also make sure the effective date of the policy is correct (in most cases it should be the closing date). Ask questions if you are unclear about anything or if the terms or amounts are different from what was promised. It is also wise to have your lawyer review the policy to make sure everything is correct.
• Ask about fees associated with the policy. Some fees and services are included in the title insurance premium, and some may be charged separately (like the cost of search and examination). To avoid surprises, inquire about all fees before obtaining the policy.
• Shop around. When you buy a home, real estate agents or others involved in the transaction may try to steer you to a particular title insurance company. In most cases, you are not obligated to use the suggested company, and it is wise to shop around for the best policy and price.
• Ask your escrow or title officer if any discounts are available. Sometimes discounts are available for first time buyers or for people buying in a new subdivision.
• Buy at the same time as the lenders policy. Some new homeowners do not buy an owner’s title insurance policy because they feel it’s unlikely there will be problems. But the cost of an owner’s policy is usually low when it’s bought at the same time as a lender’s policy. For a small investment, you can gain a lot of protection and peace of mind.
Problems in title can be extremely costly and could even jeopardize your ownership of the property. A title insurance policy protects you against monetary losses and the costs of defending yourself in case someone makes a claim against your new home. Our law firm can advise you how to obtain a policy and about its terms.
Contact an attorney at Triscaro & Associates today. Please call us for all your legal needs. We offer a full range of legal services to individuals, families and businesses, including personal injury, estate planning, real estate, family law and business matters. We are dedicated to providing the highest quality legal services at a reasonable cost.