When you purchase a home, the title of it must be researched to make sure the seller has the right to sell the house; that no one else has a claim on the house, for example. The title examiner will look closely at all available public records of the house, including past deeds, wills, and trusts to make sure the house is free and clear to be sold. If the title is clear, you can buy the house. If not, any legal problems need to be cleared up.
Title insurance protects you and your mortgage lender in the event that a problem occurs with the title at any point during your ownership. It can be a problem that just didn’t show up in the title examination, something the examiner missed, or because of an error in the public records. Let’s say a long lost heir claims a right to the house after you’ve bought it. Title insurance will cover the cost of untangling this legal problem.
There are two types of title insurance. A lender policy, usually issued for the amount of the mortgage, covers the mortgage lender. If you have to go to court with the long lost heir, the policy will cover the costs of that. If the long lost heir is indeed the legal owner of the house, instead of you, the policy will pay the mortgage back to the lender.
An owner policy covers the price of the house and pays the owner of the property for loss due to a problem with the title. If you have an owner policy and the long lost heir wins the court case, your owner policy will reimburse you for the loss of the property.
Title insurance does not cover any defects found in the property after closing, and some policies do not cover problems related to easements, mineral rights, and liens. Unless your state specifies differently, buyers must pay for title insurance, although that can be negotiated with the seller. The price is a one-time fee, usually part of the closing costs.
Most lenders require you to purchase a lender policy, but not all require an owner policy. Of course, if you’re paying cash for a property, you do not have to get title insurance, but it certainly wouldn’t hurt. It’s a good idea to protect your investment.
Joseph Talbot, ASA
Remax Clearview Inc. brokerage
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