When you buy a home, legal rights are transferred from the seller to you. Unfortunately, unexpected title-related legal or financial issues can still arise, and one way to protect yourself is with title insurance. 

Title insurance is not required by law, but it is a simple one-time fee that helps you safeguard your investment.

What is Title Insurance?

Title insurance is a crucial safeguard for homebuyers and mortgage lenders, protecting against potential legal and financial risks associated with the ownership of a property. It provides coverage for issues such as undisclosed heirs claiming ownership, forged documents, unpaid taxes, and errors in public records that could threaten the validity of the title post-purchase. By ensuring that the buyer has clear ownership and defending against any challenges to that ownership, title insurance offers peace of mind and financial protection throughout the ownership of the property.

There are two types of title insurance: lender’s and owner’s. In this article, we will talk about the importance of carrying owner’s title insurance.

How It Works and What It Covers

Title insurance is like a safety net for homebuyers and lenders. It protects against unexpected problems that could make the property's ownership uncertain after you buy it, ensures the integrity of property rights, and supports the smooth transfer of real estate ownership. Other benefits include:

• Protects Against Title Defects: Title insurance protects property owners and lenders from financial loss due to undiscovered or undisclosed title defects, such as liens, encroachments, or errors in public records.
• Ensures Ownership Rights: It ensures that the buyer has clear ownership rights to the property, free from any legal disputes or claims that may arise from past ownership issues.
• Covers Legal Costs: Title insurance covers legal expenses incurred in defending the title against challenges and claims, even if the claim is ultimately unsuccessful.
• Lender Requirement: Lenders typically require title insurance as a condition for approving a mortgage or loan, ensuring that their investment in the property is protected.
• Peace of Mind: It provides peace of mind to property owners by safeguarding their investment and protecting against potential financial losses related to title issues.
• Coverage for Prior Events: Unlike other types of insurance that cover future events, title insurance covers risks and defects that existed before the policy was issued but were unknown at the time of purchase.
• Supports Marketability: Title insurance facilitates the sale and transfer of property by assuring potential buyers that the title is clear and marketable.

When you buy a home, a title company checks to make sure everything is in order with the property's ownership history. If they find issues with the title search, they will work to resolve them before your settlement. Title problems or “clouds” could interfere with your ability to close. In most cases, the title comes back clear and the transaction moves forward. However, future claims to your title could still surface years later.

For example, unpaid taxes or liens on your property could pop up later, and expenses to fix those issues come out of your pocket if you don’t carry owner’s title insurance. You could even lose your home, no matter whose fault it is.

Cost of Title Insurance

Title insurance premiums vary based on the insurance provider and state regulations, but they typically range from $500 to $3,500. A seller can choose to cover your owner's title insurance policy as part of the sales contract. This is one way to negotiate when the seller is motivated to sell. 

The process of acquiring an owner’s title insurance policy begins after you finalize the property purchase agreement. It’s often initiated by a third party like a closing agent. Research state-specific regulations and available options is advisable, as requirements and cost savings can vary widely. Once you have chosen your insurance provider, keep your records organized so you can show proof of insurance as required.

If Owner’s Title Insurance Isn’t Required, Why Should I Get It?

Title issues can turn your dream home into a nightmare without the proper insurance. One way you mitigate that risk is by securing owner’s title insurance. This one-time fee protects you as long as you own the home and is low compared to the cost of fixing title issues later. Protect yourself and this significant real estate investment with owner’s title insurance.

Need help creating your personalized mortgage plan? Schedule a free consultation with the Leo Anzoleaga Group to get started!