When you buy real estate, a search is conducted to make sure the property's title is clear. That means the buyer will become the property's undisputed legal owner. Title insurance is designed to protect lenders and homebuyers from title issues uncovered after closing.
There are two types of title insurance: the owners and the lenders.
Owner’s title insurance protects your investment in your property from certain future legal claims regarding ownership of your property. For a one-time fee, you and your heirs* receive coverage for as long as you own your home. The owner’s policy also covers potential legal fees and court costs for settling claims covered by your policy.
Sometimes undiscoverable defects can come up after the title search. Under an owner’s title insurance policy, you are protected against certain undiscovered errors in the title.
Title issues include unknown:
Unforeseeable title claims include:
1- Forgery: making a false document
For example, the seller misrepresents the identity of the person who sold the property.
2- Fraud: deception to achieve unfair gain
For example, someone steals your identity and either sells your house without your knowledge or consent or takes out a second mortgage on the property and walks away with the money.
3- Clerical error: inconsistent paperwork and historical records
For example, an unforeseeable discrepancy in the property or fence line can confuse ownership rights.
The one-time payment for owner’s title insurance is low relative to the value of your home. A typical title insurance policy costs around 0.5% of the home’s purchase price.
Your owner’s insurance policy lasts for as long as you or your heirs* own your property. Your life will change over time, but your peace of mind never will.
Closing is the final step in executing the homebuying transaction. It is the process that allows the transfer of ownership to occur. Upon completion of the closing process, you get the keys to your home!
Yes, unless you are prepared to accept unlimited risk. If you get a mortgage, you'll be required to purchase title insurance to protect your lender.
To be clear, if you get a mortgage, you'll have to buy title insurance to protect your lender. But if the buyer doesn't purchase title insurance any financial liability related to title issues could be their own responsibility.
Title insurance is issued after a careful examination of copies of the public records. But even the most thorough search cannot absolutely assure that no title hazards are present, despite the knowledge and experience of professional title examiners. In addition to matters shown by public records, other title problems may exist that cannot be disclosed in a search.
Here are just a few of the most common hidden risks that can cause a loss of title or create an encumbrance on title:
Title insurance will pay for defending against any lawsuit attacking your title as an insured, and will either clear up title problems or pay the insured's losses. For a one-time premium, an owner's title insurance policy remains in effect as long as you, or your heirs, retain an interest in the property.
This five-minute segment on PBS' Spotlight On features ALTA 2019 President Cynthia Durham Blair NTP offering her perspective on the benefit of title insurance and why homeowners need this protection when buying a home.
Protecting your biggest investment and achievement will always be smart!
Watch this short video that explains a little more about Title Insurance.
ALTA members go to great lengths to protect consumers from wire transfer fraud when buying and selling property.