What is Title Insurance and How Can It Help You?
Title Insurance protects property purchasers and mortgage lenders against defects or problems with a title when there is a transfer of property ownership. If a title dispute arises during a transaction, the title insurance company may be responsible for paying stated legal indemnities, depending on the title insurance policy.
What is title insurance on a home? And, what is the purpose of title insurance? Read on to find out.
Title Insurance Definition
Title insurance is a kind of indemnity insurance that protects moneylenders and homebuyers from monetary loss sustained from faults in a title to a property. The most common type of title insurance is lender's title insurance, which the mortgagor buys to protect the moneylender. The other type is buyer's title insurance, which is often paid for by the seller to protect the purchaser's equity in the property.
How Does Title Insurance Work?
A clear title is needed for any real estate deal. Title insurance companies have to do a search on every title to check for claims or liens of any kind against them before they can be issued. A title search examines public records to identify and check a property's legal ownership and to determine whether there are any claims on the property. For example, a title can become faulty due to flawed surveys and unsettled building code violations.
The purpose of title insurance is to shield both moneylenders and homebuyers against loss or damage occurring from liens, encumbrances, or faults in the title or actual property possession. Common claims filed against a title are back taxes, liens (from mortgage loans, home equity lines of credit, and easements), and inconsistent wills. Unlike traditional insurance which safeguards against prospective events, title insurance guards against claims for previous incidences.
What Does Title Insurance Cover?
A title insurance policy usually covers the following:
Though title insurance policies vary from state to state and provider to provider, they always cover the cost of conducting a title search. Preferably, a title search examines the entire history of a property, stretching back to its original platting or subdivision. A comprehensive title search typically relies on local tax records, previous owners’ wills, and applicable court judgments.
Curing or Resolving Problems
A title insurance policy also covers the cost of resolving (also known as curing) most title defects uncovered during the title search. Common defects include:
- Tax liens (for unpaid taxes)
- Construction liens (for unpaid construction or renovation bills)
- Creditor liens (such as an unpaid balance on a pre-existing mortgage)
- Court judgments (such as a post-divorce judgment endowing part of the property to a previous spouse)
Legal Costs and Loss Compensation
Title insurance also covers future costs arising from title disputes. If a court rules the most recent transfer of the property as invalid, the policy also compensates the policyholder for any loss of equity in the property.
How Much Does Title Insurance Cost And Do I Need It?
Unlike traditional insurance companies where monthly payments are needed, title insurance only needs a one-time payment. This insurance varies according to the price on your home and according to the state where you are buying a property. Typically, a title insurance policy for a homeowner costs $834 and for the lender it costs $544.
Title insurance will buy you peace of mind. It not only protects you against covered claims, but it will also pay your legal fees while you protect your ownership rights. Plus, it will pay you the amount of your home equity if you lose the lawsuit and have to vacate the property. If you pass away and leave the property to your heirs, the same title insurance policy will cover them while they’re in the home.
Benefits of Title Insurance
With title insurance, you and your creditor won’t have to worry about problems cropping up during the real estate deal. The title insurance company identifies and fixes all the problems before you close the deal and protect you if any disputes arise after closing.
After the title search, the insurance company issues a “title insurance commitment” describing what they’ve uncovered, giving the seller the chance to clarify any problems. At the same time, the buyer gets the opportunity to call the sale off. If all parties agree with the title commitment, the transaction proceeds and when you close on the property, you do so with a clear title and insurance to cover any unexpected claims in the future.
In the grand scheme of your home buying expenditures, title insurance is small and often overlooked. That doesn’t mean you should skip it, though. Think of it as a little investment that safeguards your biggest investment: your home.
In the competitive real estate market today, whether you are a buyer or a seller, you need a skilled negotiator to ensure a successful outcome. Call 610-642-3744 or email Janis Peterson at email@example.com and buy or sell your next home with the best Main Line real estate agents! You can also browse our listings in Bryn Mawr, Gladwyne, Haverford, and all the best Philadelphia suburbs online.