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  • Writer's pictureJeff Sorg

Why You Need Title Insurance: Peace of Mind for Your New Home


Homeowner smiles at title insurance agent

Understanding title insurance is a crucial part of any real estate transaction. Think of the title insurance policy as a contract between the buyer and their title insurance company that acts as a protective shield for the buyer and their lender for as long as the buyer owns the property. A property's title is like a legal biography documenting its past owners, debts, taxes, and usage restrictions. Knowing this information, which is found in a title report compiled before the title insurance policy is issued, is critical to a safe and secure real estate transaction.


During the escrow period, a comprehensive search of the property's title is conducted to examine its history. This examination involves reviewing public records to trace the property's ownership history, search for outstanding voluntary and involuntary liens, and identify easements. The preliminary report is the first report that results from this examination, which allows the buyer to review any issues that may affect the property's title of the property before proceeding with the transaction. Once all the agreed-upon items are cleared from the preliminary report, such as the seller's unpaid mortgage balance, unpaid property taxes, and any other liens to be paid before closing, the title company issues its final title report to the buyer at the closing.


However, even the most thorough title search can miss hidden problems due to various factors such as human error or incomplete records. This is where title insurance comes in as a safety net. Suppose an unforeseen title issue surfaces later, such as an unpaid tax lien from a previous owner or an heir unexpectedly contesting the sale. In that case, title insurance will cover the legal fees for defending the buyer's ownership rights and ensure they continue to possess their home rightfully.


There are two main types of title insurance to consider:

  • Lender's title insurance—This policy protects the lender's financial interest in a property, specifically its mortgage. It is usually a requirement for mortgage approval so the lender can avoid any potential losses in case of title issues after the closing. It is important to note that this type of insurance is solely for the lender's benefit, not the homeowner's.

  • Owner's title insurance safeguards the buyer's investment in the property. It covers the total purchase price of the property and any legal costs incurred if someone challenges their ownership after the transaction is closed, as long as they own the property and so long as the challenge isn't agreed to be excluded when the policy is issued. While this type of title insurance is not mandatory, it is highly recommended for several reasons, and the instruction to order it is usually included in most preprinted real estate sale agreements.


Benefits

  • Title insurance offers homeowners one of the most significant benefits: peace of mind. Buying a home is a big financial commitment, and unexpected claims can be overwhelming. With title insurance, buyers can rest assured that their ownership is protected, and they can confidently embark on their new homeownership journey. This isn't just a luxury; it's a necessity for any responsible homebuyer.

  • While a title search is comprehensive, it may not uncover every potential issue. For example, there could be a forgery in a previous deed, a missing heir, or an undiscovered easement that wasn't correctly documented. Title insurance acts as a safety net for homeowners by providing financial protection, covering the costs of resolving these unforeseen problems that didn't appear during the title search, and ensuring a clear title.

  • Legal battles can be expensive, and defending ownership rights against a challenger can be daunting. Title insurance provides a significant advantage by covering the legal costs if someone challenges ownership. This can save a significant amount of money and emotional distress.


Cost

  • Title insurance is a one-time premium paid at closing. The lender's and owner's policies are usually cheaper when purchased as a bundle. It's a small price for the immense security of knowing your real estate investment is genuinely yours.


 If you are planning to buy a home, it is essential to consider the significance of title insurance. If you have questions about title insurance, ask your real estate agent to refer you to a reputed insurance company that can help you understand how it can protect your investment. Title insurance is an intelligent way to safeguard your new property and confidently start your homeownership journey by knowing that any unexpected title issues won't disrupt your ownership.


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(C) 2024 Jeff Sorg

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