Title insurance – a real estate must
Living through the complexities of a real estate transaction can sometimes seem like you’re walking through a fog of paperwork and signing your name to dozens of documents. Actually, this is exactly what you’re doing and by the time you walk away from the closing table, you may not be sure what exactly you’ve purchased. However, one of those pieces of paper represents something that you need to pay attention to and make sure you don’t say no to.
Title insurance has been around in the United States since 1876 stating with a Philadelphia company. Prior to this, buyers in real estate transactions bore sole responsibility for ensuring the validity of the land title held by the seller. If the title were later deemed invalid or found to be fraudulent, the buyer lost his investment. Today we have two types of title insurance, one to insure the lender and one to insure the homeowner.
Title insurance is a onetime premium paid to a title company that guarantees your ownership in a particular piece of property and guarantees that no one else has a claim to that property. The premium is paid at closing and represents one of the major closing costs. Title insurance protects you from events which may have occurred before the purchase of the property, events which could include forgery, incompetent persons, clerical errors, undisclosed heirs or any number of irregularities preventing clear title to the property.
If property is being purchased with financing, the requirement of title insurance is guaranteed. Mortgage lenders want to protect their investment in your property and will not only require that it be purchased, but will also expect the buyer to pay for it as part of his/her closing costs.
But there is another title insurance that all buyers need to be aware of, especially in the complex world we find ourselves living in. Homeowner’s title insurance assures a purchaser that the title to the property is free from all defects, liens and encumbrances. It also covers losses and damages suffered if the title is unmarketable, or for loss if there is no right of access to the land, unknown heirs, forged deeds, incorrect legal descriptions and improper recording of deeds. Basically the homeowner’s title policy insures that portion of the property’s value not mortgaged or the equity in the property. The mortgaged portion is covered by the lender’s title policy.
Since homeowner’s title insurance, which is also a onetime fee, is not required to close on the property, some purchasers will choose to decline the coverage, which would be a mistake. Even though title insurance is given to the lender, there is no guarantee that at some point in the future a cloud on the title could appear, which would leave the lender insured but not the homeowner. Likewise, cash sales can be closed without purchasing either lender or homeowner title insurance. Again, being penny wise and pound foolish could leave you, as the owner of the property, being the fool.
Because so many buyers are purchasing foreclosed properties in today’s real estate market, home buyers' exposure is more than it’s been for over a decade. Don’t let the fog of the real estate process leave a cloud on your property’s title. It’s more important than ever to protect your investment and purchasing homeowner’s title insurance is an essential part of the process.