In any real estate transaction, protection is always important. Various types of insurance can help protect homeowners and lenders alike from unforeseen problems that might arise during the purchase of a property.
Title insurance is one such type of safeguard that is valuable to both homebuyers and mortgage lenders. Although a title is searched at the time a buyer makes a home purchase, title insurance guarantees that any problems missed during the search cannot be held against the new owner.
Definition
Title insurance is an indemnity policy that protects against financial loss that might arise from issues with the previous owner of a home or property. Homebuyers and lenders who purchase title insurance are assured protection in the case that a title is later found fraudulent or for any reason invalid, thus safeguarding the financial investment in the property. Since homes often pass through several iterations of ownership, it could be difficult to ascertain every aspect of a property’s history; title insurance eliminates an owner’s vulnerability to claims lodged against the property by anyone previously associated with it.
Types
There are two different types of title insurance. One is an owner’s policy, which protects a homebuyer’s equity in a property. The other type is a lender’s policy, which protects the bank or mortgage provider who has lent the money for the purchase of the property until the loan is repaid in full.
Coverage
Title insurance can protect against a variety of circumstances that might arise concerning the previous owner of a property. Should there be any question regarding fraud or forgery, tax problems or liens against the property, or even missing heirs, title insurance protects the current owner and lender from being held responsible for any legal claims or fees that may arise. An owner’s title insurance lasts until the home or property is later sold.
It’s important to note that title insurance only covers any circumstances stemming from claims leveled at the property prior to the property purchase. Any problems or damage to the property that arise after the buyer has purchased it are instead covered under the current owner’s property insurance policy.
Cost
Title insurance pricing varies depending on where a property is located. Each state has a different regulatory system (some states do not regulate rates at all) and the cost of a policy can also be dependent on local factors, including competition among insurers. The good news is that the cost of a title insurance policy is a one-time fee.
In most cases, the buyer pays for the homeowner’s title insurance policy, but the seller could pay for it as part of the home negotiations. In most situations, the Lenders title insurance policy is mandatory and is paid for by the buyer of the home as part of the mortgage closing costs.
If you are a homebuyer obtaining a mortgage, talk with your loan officer about expectations and recommendations surrounding title insurance. As with any type of insurance, title insurance policies are designed to safeguard a new homeowner against unforeseen problems with a property’s title.