How Title Insurance Protects Homeowners
Buyer’s (or owner’s) title insurance is usually an optional part of the home-buying process. Find out why the protection it offers makes it a worthwhile investment.
If you’re buying a home, you’ll probably have to purchase lender’s title insurance as part of your mortgage. But what about owner’s title insurance? Why do you need it, and what makes it worth the extra expense?
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Two Kinds of Title Insurance
There are two kinds of title insurance, and they basically do the same thing:
- Describe the property and any known risks or limitations, and
- Protect the insured party against any financial loss arising from any unknown limitations.
The key difference between owner’s and lender’s title insurance is who is protected: lender’s insurance protects the lender (mortgage provider) against loss, while owner’s insurance protects the home buyer. As such, owner’s insurance is active as long as that person owns the property described.
What Does Title Insurance Protect Against?
In the preceding section, we mentioned some mysterious “risks and limitations” that come with buying a piece of real estate. Broadly speaking, these are anything that could prevent the buyer from legally owning or fully using their property.
When you begin the mortgage process, someone on the mortgage team will ask for (or commission) a title search. A title search documents the history of that piece of property and tries to uncover anything that could cause a problem with the title, or all the legal rights involved with that property. Essentially, the title should show that the seller has a legal right to sell the property and that there are no unpaid debts associated with it.
For many home buyers, there are no title issues to contend with. But occasionally problems do arise, even after the sale is completed. In this case, owner’s title insurance will protect the homeowner against financial loss arising from:
- Fraud (i.e. the seller had no right to sell that property).
- Contested ownership.
- Liens for outstanding debts, such as homeowner association fees, unpaid contractor costs, or property taxes.
- Property disputes.
- Encroachments or easements.
- Code violations.
Any of these can be expensive and time-consuming to remedy, and some can involve frustrating and stressful legal battles. That’s something all of us want to avoid, which is why there’s title insurance!
How Title Insurance Protects Homeowners
If you buy real estate that has code violations, liens, or unpaid taxes, you’re responsible for fixing the problem or paying off the debt – and this is exactly what title insurance protects against. The title insurance company will pay any legitimate claims for you (up to the policy amount) and even pay any related legal costs. However, it’s important to note that title insurance companies will only defend you against problems that happened before you purchased the property; any lien, debt, or violation that happens during your ownership is up to you to deal with.
So, given how expensive these unexpected claims can be, it makes sense to pay the extra cost for buyer’s title insurance. You’ll get protection and peace of mind as you move into your new home.
Got More Title Insurance Questions?
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