Being in the position to pay cash when purchasing a home is a great feeling. However, before you close the deal, it is still in your best interest to purchase title insurance. Paying in cash will not keep you safe from the things that title insurance is designed to protect you from. In some cases, if you are paying cash you may be able to negotiate the cost of title insurance into the closing costs.
What Does Title Insurance Cover?
Once a property title search has been completed and ownership of the property has been verified, the homeowner will then be issued title insurance. This insurance protects both property owners and lenders from losing the property due to any title defects such as liens, lawsuits, unpaid taxes, fraud, or errors as well as covering the costs of defending against future, unforeseen claims on the property.
Some of the things that a typical title insurance policy will cover include:
- Ownership by another party
- Incorrect signatures on documents, as well as forgery and fraud concerning title documents
- Defective recordation (flawed records or record-keeping)
- Restrictive covenants (terms that reduce value or enjoyment), such as unrecorded easements
- Encumbrances or judgments against property, such as outstanding lawsuits or liens
Ideally, a property title search will weed out any of these issues and the title insurance will act as a safety net. However, there are situations where past occurrences with the property rear up and at that point you will be glad you have a title insurance policy in place.
How Much Does Title Insurance Cost?
In New Jersey, title insurance is regulated by the state’s Department of Banking & Insurance. This means no matter which title company you use, the title premium will be the same. The price of title insurance will change based on a variety of factors related to the property such as the price of the property or the expected cost of defects. Since the cost of title insurance in New Jersey is fixed, it is important to choose a title company based on how experienced their staff and meticulous their research process is.
Title insurance is a one-time premium fee and will protect the owner as long as they own the property, or longer in some cases. Title insurance is relatively inexpensive compared to how much it covers, so it is a wise investment for homebuyers.
Risks of Not Having Title Insurance
Forgoing title insurance opens the home buyer to significant risk if a title defect pops up after closing on the home. Consider a buyer who purchases their new home, only to find out that there is unpaid property tax from a prior owner. A surprise financial burden like this can be devastating, but with title insurance you would be able to mitigate any problems like this should they come up. Given that most people purchase a home to spend their life in, it’s no surprise that people may not be familiar with the immense benefit of title insurance. Speak to a title company early in the home buying process to eliminate these risks.