|
So you are buying a home… Are you sure that home is able to be sold? Does the Seller really own the property? Are there any problems with the home’s title? Depending on the answers to these questions, among others, you could be limited in your use of the property you purchase or even suffer some financial loss. Title insurance, however, can save you from those problems.
Title insurance protects a homeowner’s right to own and occupy their property and protects against decreased value due to hazards and defects that may exist in the title. A title search can reveal these hazards, which include fraud, forgery, unknown heirs, documentation errors, and more. If you are uninsured and adverse claims are made against your title, you could lose your home and be responsible for all legal expenses incurred trying to defend your title.
The purchase of a new home is one of the most important investments in a person’s lifetime. To protect the value of your property, you should purchase an owner’s title insurance policy in addition to the loan policy your mortgage lender will require to protect their interest in your home should you obtain a loan to purchase it.
Title Insurance for Different Transactions
Purchases When you buy a home or property, you should have the right to occupy and use it as you wish, to be free from other people’s debts relating to the property, and to be able to use your property as collateral for a loan. There may be errors in public records, hidden defects, judgments or liens against the property. Without title insurance, you may be held fully accountable for any such claims and have no rights to your property. For this reason, your lender will require a loan policy and you are advised to purchase title insurance to protect and defend you against all covered claims up to the amount of the policy.
New Construction Purchases Although it may seem as though title insurance is unnecessary when making a new construction purchase, it raises special title problems for the lender and owner. Most likely, you are not the first owner of your home’s construction lot; several parties may have previously owned the unimproved land. The builder may have failed to pay their subcontractors and suppliers, resulting in liens on the property. Purchasing title insurance with your new construction, however, can protect you from these potential problems in addition to paying for your legal defense against claims.
Refinances If you purchased an owner’s policy with your new home, your policy will remain in effect. Nevertheless, your lender will require a new loan policy because when you refinance, you obtain a new loan even if you refinance through your original lender. Some problems, such as liens or judgments, could arise with the title to your home even if you recently purchased or refinanced it. In order to finance your loan, the lender will need reassurance that the title is free from all defects. Some situations may allow you to qualify for a discounted reissue rate for the new loan policy though.
Please see Refinancing for more information.
The Title Search Once your sales contract is accepted and you have chosen to purchase title insurance, your MAXIMUM Processing Specialist will initiate a title search. A title search is the search, perusal, and review of all publicly recorded instrument documents which affect a specific parcel of land to determine the present condition of title. An experienced title officer or attorney analyzes the searches resulting material and then determines if the title is sufficient and insurable. It can reveal issues such as title defects, liens, unpaid taxes, unsatisfied mortgages, judgments against buyers or sellers, restrictions or conditions that limit land use, and any other encumbrances and restrictions.
Typically, the title search involves a review of land records in the chain of title beginning with the current owner(s) through the owners for the past 60 years, if applicable. All of the affecting documents are analyzed for accuracy, completeness, and proper execution. All owners found in the search period are indexed according to ownership rights, marital status, and their legal and mental capacity to enter into contracts. Finally, all conveyances are checked for proper conduction and appropriate government approvals.
Over one-third of the conducted title searches reveal a title problem, such as prior owner liens, that we can fix before you go to closing. Though the title search carefully analyzes the available information, it is not an absolute process.
There are some hidden hazards that a title search may not reveal including, but not limited to, defective deeds, fraud, forgery, name confusion, legal marital status, conflicting wills, mental incompetence, recorded clerical errors, and missing heirs. These issues could jeopardize your ownership rights if they arise after you have already purchased your home.
Please see 70+ Ways to Lose Your Property for more hidden hazards.
The Loan Policy A lender’s or loan policy is title insurance issued to the mortgage lender to protect them against loss due to title defects that may be unknown at the time of sale. All corporate lenders require this coverage as a condition to the Buyer’s loan. It protects the lender from title problems such as fraud, misrepresentation, improper wills, and other issues that may jeopardize their security in the property. Because this policy only protects the lender up to the amount of the loan, the Buyer needs an owner’s policy to protect their own interest.
The Owner's Title Policy An owner’s policy is title insurance issued to the Buyer to protect them against loss due to title defects that may be unknown at the time of sale and which may cause fault in ownership. It can prevent financial loss in the event that charges are claimed against the title to your home. Additionally, it covers legal costs for title defense and payment of claims covered by the policy up to the policy’s maximum coverage amount.
The types of risks your title insurance covers depends on the type of owner’s policy you choose. The standard owner’s policy protects the owner’s equity in the property that will increase as the loan is paid down. The enhanced coverage provides inflation protection, post-settlement coverage for forgeries and encroachments, some zoning, subdivision and building permit coverage as well as special affirmative coverages not provided for in the standard policy.
Cost Composition When it comes to what makes up the costs for their title insurance premium, many consumers do not understand and are hesitant to purchase an owner’s policy. Title insurance, unlike other forms of insurance, is a means of asset protection for one of the most important purchases of a person’s life. The loss prevention process is both labor-intensive and expensive.
A title insurance policy’s premium typically costs no more than 1% of a property’s purchase price. That premium is generally based on maintaining current title information, title search and examination, clearing title defects, defending legal claims, and a small profit, which is usually less than 10%.
In the grand scheme, the benefits a Buyer receives from purchasing title insurance far outweighs the possible loss, which can be any dollar amount for financial loss or even total property loss.
|
