A home is the most significant purchase a person could make. So it makes perfect sense that you’d pay a little extra to protect it from natural disasters and damage. The physical condition of your property is covered, but what about the rights to the title? Let’s look at what title insurance is all about and how it can protect your dreams as a homeowner.
What is title insurance?
Title insurance is a type of insurance that protects against damages and losses related to the property title. These could be liens, back taxes, or ownership claims. One of the main functions of a title company is to issue these policies and protect the lender or homebuyer when they make claims.
What does title insurance cover?
Before we get into what title insurance covers, let’s start with the two types of title insurance: lender’s policy and owner’s policy. Each policy is issued by the title company to protect the lender and buyer from title hazards and is regulated at the state level, meaning it will be the same price from title company to title company. These policies will cover problems that were either missed in the title search or simply could not have been detected.
The lender’s policy protects the lender from financial losses, while the owner’s policy protects financial losses and ownership rights.
Owner’s title policy
Typically, an owner’s policy is purchased at closing and is a protection for the homebuyer against title defaults. The owner’s policy is optional and can be paid either by the seller or the buyer. Here are a few ways an owner’s title policy protects homebuyers:
- Ownership claims
- Improperly recorded documents
- Fraud and forgery
- Unpaid liens
You may be asking yourself, “Isn’t it the title company’s job to clear these issues before closing?” Yes, but there are many problems a title search could not prevent.
For example, say you purchased your property from a husband and wife. Years later, a woman comes forward claiming that her signature was forged at closing and that she did not consent to sell the property. Now she claims a vested interest in the property, and your ownership rights to are questioned. In this instance, the title company would help cover costs related to settling the claim.
Lender’s title policy
While an owner’s policy is optional, the buyer is required to purchase a lender’s title policy. This policy will protect the lender from any financial losses related to title issues. The lender will be protected for the total loan amount and, just as with the owner’s policy, it is regulated at the state level.
NOTE: The lender’s policy protects the lender only. It does not protect the buyer.
How does title insurance differ from home insurance?
Home insurance and title insurance are two types of insurance related to your property, but they each serve a distinct purpose.
While home insurance protects your property from natural disasters and general physical damage, title insurance covers damage related to the legal rights of the property. In addition, title insurance is paid as a one-time fee at closing. If the seller can provide their owner’s policy on the property, you may receive a discounted “reissue” rate, depending on how long ago they purchased the policy.
How much is owner’s title insurance?
Title insurance is regulated at the state level and will depend on the property’s sales price. It will be a one-time fee paid at closing and can be paid by the seller or buyer. If the seller can provide their owner’s policy, you may be able to get a reissue rate to lower the price of the policy.
Do I really need title insurance?
As the buyer, you do have the option to opt-out of an owner’s policy. You need to consider that should issues such as unpaid liens, ownership claims, or encroachment issues arise, you, as the homeowner, will be the only one responsible for bearing the financial burden.
Title insurance is a one-time purchase that covers you the entire time you own the property. So while you may think these issues are few and far between, it is ultimately a small price to pay for complete protection on life’s most important purchase.
Sunnyside Title Insurance Agency is a fully licensed Title Insurer and Settlement Agent dedicated to providing professional title and title-related services to attorneys, lenders and real estate professionals. We are a full-service title company committed to excellence in both residential and commercial real estate transactions.