If you’re thinking of buying a new home, it’s an exciting time. But, don’t let your excitement prevent you from looking at all of the things you need to do to protect yourself during this important investment transaction. Purchasing an Owner’s Title Insurance Policy is one of those things you shouldn’t overlook.
Why You Need an Owner’s Title Insurance Policy
When you look at the closing costs for your new home, you’ll see that you will pay for your lender’s title insurance if you are financing your home. That’s because your lender knows how important it is to protect against a title issue. But, don’t be tempted to think that one title insurance fee is enough. The insurance for your lender only protects that business. Without your own policy, you’re still at risk.
What is a Title?
A title is a document that identifies the person who owns a piece of property. It is the legal document that proves that you own your new home. But, you need to be sure that you have a clear title, meaning that no one else can claim ownership of your home. That’s why you hire a title company as part of the closing process. The title company searches public records to ensure there are no outstanding claims.
Once that title search is complete, the title company can provide you and your lender with title insurance policies. Those policies protect you in case the title company didn’t find an existing claim, or if someone makes a claim after you own the property.
How Can Someone Have a Claim to the Home I’m Buying?
It doesn’t happen often, but when there is a problem with your title, it can be devastating. Here are some of the ways title disputes happen.
· The previous owner did work on the house and their contractor never paid the subcontractors. The subcontractors could put a mechanics lien on the house to try to get their money. If you have closed on the home, you may end up being responsible for paying the subcontractors.
· If there are errors in public records, it could affect your ownership and cost you time and money to resolve.
· If you don’t know about an easement, it could let a government agency or other individuals to access your property. It may not be a problem for you, but if someone with an easement wants to build a road on your land, it could cause heartache.
· The person who owned the home previously may have died, but no one could find a will. It could happen that long after your closing, family members discover the will and those heirs may dispute your ownership.
· You may have heard about unscrupulous individuals who find a home where the owners are going to be away for an extended period. They then pose as a real estate agent and actually sell the home with fraudulent documentation. When the real owners of the home appear, you as the buyer would have a horrible problem.
To avoid situations like these, title companies do extensive searches of public records to make sure that there is a clear title before you close on the house. But, things do go wrong sometimes.
What Does Owner’s Title Insurance Cover?
You’ll need to read your title policy to find out exactly what your specific policy covers. Local regulations may limit coverage in some areas, and the insurer may have limitations or exclusions. Look for whether your insurer has different levels of policies. You may need to upgrade your policy to cover all of the examples listed below. In general, a policy would cover things such as:
· Forgery
· A party to the transaction who didn’t have the competency, capacity or legal authority to have sold the house
· Someone who sold the house without the required involvement of a spouse, co-owner, or business partner
· A prior mortgage or lien that was recorded but not disclosed by the seller
· An easement or restrictions on the use of the property that was recorded but not disclosed by the seller
· Legal descriptions of the property that are wrong or not adequate to determine property lines
· Deeds that weren’t recorded legally
· Your property having buildings on it that are located on someone else’s land
· An erroneous survey of your property lines
· Liens that aren’t recorded such as mechanics’ liens or estate tax liens
· The removal of improvements to your home because the owner who did the improvements didn’t get building permits
Your policy will usually cover legal expenses you’ll pay to investigate, litigate, or settle a claim. Depending on your coverage, it may also cover other types of expenses such as moving a building on your property that is located on someone else’s land.
Is Title Insurance Worth the Cost?
When you buy home insurance, you assume that there’s only a very small possibility that your house will burn down in a fire. But, you have peace of mind knowing that the insurance is there in case it does.
You can apply the same concept to Owner’s Title Insurance. You may never need it, but you’ll sleep better knowing you have it. Here are the reasons why you need that policy.
· It can help you spot problems before you close. American Land Title Association is one of the largest title companies in the U.S. They published a report stating that title companies find and resolve problems with a title in 25 percent of searches. Doing a title search before you close can save you from bigger problems later.
· It protects your investment. You know that buying a home is the biggest thing many people purchase in their lifetime. You have home insurance to protect you against loss. It would be a terrible thing if you lost your home due to a title issue when you could have avoided it.
· It reduces your risk in purchasing a home. Now that you know how many things could go wrong with your title, you can appreciate the fact that you need to protect yourself against those risks.
· It will pay out more than you paid for it. The cost of a policy is a one-time fee that you pay as part of your closing costs. When you need it, the expenses you incur will undoubtedly be much higher than what you paid for the policy.
· It protects your heirs. The policy will cover you and your heirs for as long as any of you own the home.
· It protects you if covered problems stop your sale of the home. What if no one discovers that your home addition didn’t have building permits until you sell. Your policy will protect you from any financial loss caused by losing a contract.
· It protects you if you purchase a new construction home. When you buy a new construction home, you’re especially vulnerable. While there is no title history, you could still run into problems. There could be a problem stemming from when the developer purchased the land or mechanics liens if the builder didn’t pay contractors or subcontractors. There could also be unpaid property taxes, or problems with surveys to establish property boundaries.
Can you imagine waking up one day to discover that you don’t really own your home? Not all title problems are that severe, but it’s not a problem any home buyer wants to face. LemonBrew can help you find an experienced local real estate expert who can help you navigate the closing process. You’ll also get a LemonBrew rebate to help you offset the cost of an Owner’s Title Insurance policy when you close.