Buying a home can be terrifying. Perhaps you’re overwhelmed by the various legal terms. Are you wondering what’s ’title insurance’ and do I need it?
Perhaps we can help. Purchasing a home is a decision that’ll affect the course of your life. Not only will it impact your immediate environment and future opportunities, but it’s also one of the largest financial transactions most people will undertake.
Title insurance is perhaps one of the first things you’ll need to consider when buying a home.
How Title Insurance Works
Firstly, a title is a legal document proving that you own a property. Title insurance is a policy that covers you and your money lenders against any losses or damages that may incur against the property’s title or ownership.
The title insurance policy will cover the following:
- An unexpected flaw or fault with the title ownership.
- Outstanding liens, such as unpaid utilities, mortgage, lawsuits, maintenance fees, or taxes.
- Fraud or errors that may arise from surveys or records.
- Disputes regarding property boundaries.
- Conflicting wills.
- The period between the finalizing of the sale and when the title is officially registered.
With conventional insurance, the cover is usually for future events. However, this insurance protects you against claims that have transpired in the past.
A clear title is necessary for any realty transaction.
To issue a clear title, a title company must do a thorough search on each title to verify the property’s legal ownership. It’s also necessary to determine whether or not there are any outstanding claims or liens against it.
Two examples that deem the title “dirty” are; if any erroneous surveys are done, or any unresolved building code violations are present.
Creation of a Title Insurance Policy
Once the property purchase agreement has been finalized, the closing agent will initiate the insurance process. A title search is then done either by the lawyer or the title agent. The customer then receives a preliminary report for review and approval. Upon escrow’s instructions, all closing documents are recorded. The policy is only created once the recording is confirmed, demands are paid, and funds are disbursed.
Types of Title Insurance
There are two types of policies; one for the owner title and one for the lender’s title.
With the owner’s policy, the home buyer is protected. As the buyer, you’re covered for any losses or damages that might incur if it’s discovered that the property belongs to someone else. There might also be a defect, a lien on the title, the land is inaccessible, or unmarketable. The policy will cover these events.
The policy comes into effect on the date stipulated in the document. The following guarantees are also listed:
- That you’ll have access to the land.
- That you’ll have the legal right to sell the property.
- That you could convey a marketable title to a new owner.
- That you’re free from any hindrance or defects, excluding the exceptions listed in the policy.
The policy value is equal to the purchase price of the property.
This policy protects the company that has issued the mortgage. It covers them for the amount of the mortgage.
Besides covering the lender for the losses that might incur, as mentioned under the “Owner’s Policy,” it also ensures the lender has priority above other liens or creditors.
If a second home loan is taken out while refinancing the first; the second mortgage will take preference if a foreclosure has to occur. In this instance, the lender’s policy will cover the first mortgage.
Having trouble with your title insurance? Contact an expert real estate lawyer from Diamond & Diamond.
Title Insurance Coverage
Title insurance also provides coverage in the following situations:
- Building permits violation: This refers to removing of structures erected by the previous owner without permits.
- Subdivision coverage: When a loan can’t be secured due to the property not being subdivided correctly.
- Coverage for the address, ensuring that the property address and the one on the policy are the same.
- Covering a violation: when there is a pre-existing restrictive covenant with an adjacent owner and they would like to enforce it.
- Protection against the violation of zoning laws.
- Protection against possible post-policy claims.
- Protection against pedestrian and vehicular property access.
- Encroachment coverage is a protection in case someone erects a structure that infringes the property.
- It covers supplement taxes prior to construction, change of ownership, or use.
- All existing structures, landscaping, or future improvements are protected against damages arising from land usage for extraction or development of minerals and other substances.
- Automatic coverage increases.
- Trust coverage will protect the inclusion of a trust you might create.
Do you Need Title Insurance?
This insurance will cover you in the event of title defects. Although the owner’s insurance is optional but beneficial, a mortgage lender might require it.
Insuring the title would secure your ownership of the property. Costs to defend a claim could be relatively high. We would recommend working with a lawyer specializing in real estate to assist in any such claims.An experienced real estate lawyer can also assist you with the process of purchasing a property. We can also give guidance on what a reasonable cost would be for your title insurance.