As you get ready to close on your new home or commercial property, the closing costs you will be responsible for can add up - and even be very overwhelming. So, without truly understanding what title insurance is, it is only natural for you to question whether you really need to invest in it.
Stop right there. Don’t make any decisions about title insurance until you learn about what it is and what it covers.
A Title Search and Title Insurance
Before a real estate transaction can take place, a title search is done. This is a thorough search of the property records dating back to when the property was built. A title search is done to ensure that the person who is selling the property has the authority to do so – and that the property you are buying has a title without any encumbrances.
Title searchers are looking for a clear chain of title from one owner to the next, as well as anything that may cause any issues, such as tax liens, mechanic liens, judgments, easements, fraudulent documents, forgeries, conflicting wills, unknown heirs, encroachments, and more.
If anything arises during the search, it would need to be cleared up before the closing or the sale may not be able to go through at all.
While title agents do a thorough job, they may not always catch recording errors, forgeries, missing heirs, unknown wills, etc. Purchasing a title insurance policy can protect you should anything arise in the future that clouds the title.
Two Types of Title Insurance
There are two types of title insurance: an owner’s policy and a lender’s policy.
An owner’s title insurance policy is designed to protect the owner. If the title search missed anything, for one reason or another, title insurance would help protect the owner’s rights to the property - and handle any litigation that may result from it.
If the new owner takes out a mortgage on the property, the lender often requires the buyer to purchase a lender’s title insurance policy. This will protect the lender’s interest in the property should any defects appear.
It is important to note that an owner’s policy only protects the owner and the lender’s policy only protects the lender. Therefore, those who are buying a property and taking out a mortgage should purchase both title insurance policies.
So, What Does Title Insurance Cover?
The question at hand - what does title insurance cover? - is an important one. Unlike health insurance and car insurance that covers you in case something happens in the future, title insurance covers you for things that happened in the past. If a home is sold to you with title defects, after it has been cleared by the title company, title insurance will protect you.
Again, these common title defects can include:
Public record errors
Unknown or missing heirs
Property survey issues
Should any of these things appear after you bought your home, you will be covered. In fact, with an owner’s policy, you will be covered for as long as you have an interest in the property - even after the property has been taken over by your heirs. They will be covered, too.
Title insurance will not protect you against future title issues, only those from before you bought the property.
When it comes to a lender’s title insurance policy, the lender will be covered for the amount remaining on the mortgage should any of these title defects appear. They are only covered until the mortgage is satisfied.
Title Insurance from Bulldog Title
As you can tell, title insurance plays a very big part in securing your right to your property, even though it means paying a higher amount at closing. The good news is that your title insurance premium only has to be paid once!
At Bulldog Title, we want to make sure you have everything you need to move smoothly into this new chapter of your life.
To learn more about title searches or title insurance, contact us at (318) 361-0061.