What is Title Insurance?
If you are looking to buy a home and are unfamiliar with title insurance, it is probably a good idea to become familiar with it. Buying a home is a big financial decision and working with a title insurance provider will provide you security and peace of mind in the long run. We’ll break down some of the basics of what you should know about title insurance and what it can protect you from.
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.
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.
