If you’re looking to buy a home you’ve probably heard/read a few times about this thing called Title Insurance. Seems like just another cost in the buying process, but why is it necessary? Gail Yannello of K&G Abstract explains the ins and outs (and why you actually do need it) here!
- Why should I buy Title Insurance?: For most people, the purchase of a home will be their largest investment. For many, the purchase of their “dream home” is an emotional investment as well. With so much invested, it makes sense to protect against the financial loss that can occur should a claim be made against the title to your home. Title insurance is available to protect your investment.
- What Does the Title Insurance Cover?: Essentially, an owner’s title insurance policy insures your ownership and possession of the property. Some of the matters covered by the policy include title being vested other than as insured, defects in or liens or encumbrances on the title and a lack of a right of access to and from the land. The coverage under the policy is subject to the conditions of the policy and certain matters are specially excluded from coverage. Excluded matters include laws and ordinances which regulate or restrict the use of the property such as laws requiring building permits and certificates of occupancy.
- How Do I Purchase Title Insurance?: Your attorney will usually contact a title agent to arrange for the title insurance which is purchased at the time of closing. The title insurer will issue a policy to you-the owner’s policy. If you obtain financing to purchase the property, your lender will often require that you purchase title insurance for the lender-the loan policy. Lender’s coverage does not protect the owner of the property.
- How much does title insurance cost? Title insurance premiums vary based on the purchase price and the amount of the mortgage. The premium is paid only once and is regulated by the state.
- For how long am I covered: The policy covers you for as long as you own the property. The coverage will also continue for your heirs and it may continue for certain grantees to whom you convey the property. You may also be covered if you sell the property and take back a mortgage or provide warranties in the deed to the purchaser.
- How does a title insurance policy protect against claims? If a covered claim is made against your title, the title insurer may take steps to correct the matter and mitigate any loss to you. If you suffer a loss covered by the policy, the title insurer will indemnify you for that loss. If you are sued and the matter alleged is covered by the policy, the insurer will hire an attorney to defend your title at no cost to you.
- What types of claims can occur?: Previous owners, their family and heirs may claim ownership or rights to the title. Third parties may claim ownership of or a right to use a portion of the property. Certain persons or entities may have a lien on the property including governmental bodies’ claims for unpaid taxes contractor’s mechanics liens, lenders attempting to enforce unpaid mortgages, and judgment creditors. Often these claims are unknown or undiscovered at the time the property is sold to you. In the event a claim is made against your title, the title insurer will address it in order to protect your ownership of the property.
- How does it protect me in the future?: Generally, a person might think of insurance in terms of the payment of future loss due to the occurrences of some future event. For instance, a party obtains automobile insurance in order to pay for future loss occasioned by a future “fender bender” or for the future theft of the car. Title Insurance is unique in that in provides coverage for claims or losses due to title defects, liens and encumbrances occurring prior to the date of the policy and excludes coverage for matters occurring subsequent to the date of the policy.
- What about undiscoverable claims? Although the title agent will examine the public records in order to identify defects in the title, certain defects, liens or encumbrances are not always discoverable due to the fact that they are not recorded in the public records. Other claims may arise due to forgery of an instrument in the chain of title, incompetency of a party to an instrument in the chain of title, or claims by a person outside the chain of title. Such matters could provide a basis for a claim after you have purchased the property.
- Why do I pay for title insurance when I refinance my property?: Lenders generally request a lender’s policy in order to cover to cover the amount of the loan. This policy covers the lender only and is separate from any owner’s policy you may have purchased.
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