If you're buying a home, getting the title is an important part of the process. The title confirms that you have ownership rights for the property you receive from the seller.
Title insurance can be a critical part of buying a home or property, as it protects buyers and mortgage lenders from losses or damages due to a bad title.
A title insurance policy should cover all the major claims that can be filed against a title, including conflicting wills, taxes owed, or liens on the property. There are a lot of scenarios that can lead to a title problem, including code violations, as well as complications related to the law.
As one example, you could discover after you buy a property that the seller doesn't have a legal claim to it. You could also discover that another party is disputing the seller's claim.
Title insurance can protect you from unexpected problems that would invalidate a title. If you work with a title company, you're less likely to face these issues, but it's still possible.
The title search is when a title company ensures a seller has the legal right to transfer a title to someone else.
There are two types of title insurance, one of which is the owner's and one is the lender's. Both are important sources of protection in a transaction involving real estate.
An owner's title policy is usually purchased to protect against possible hazards. It's optional but protects against conflicting ownership claims, outstanding lawsuits and liens, wrong public records, fraud or forgery, and undisclosed easements or agreements that could reduce the value or usage of a property.
There is always the possibility, even with a title company, that there could be issues that don't arise with a title until later, making title insurance important and one of the best ways to give yourself peace of mind as a buyer.
The lender's title insurance policy is similar in the general concept to an owner's insurance policy because it protects a lender against possible losses. The lender is covered up to the loan amount, but this policy doesn't protect a buyer.
An option you can consider as an alternative to a title insurance policy is a warranty of title. This is a guarantee from a seller that they have the legal right to transfer property ownership to a buyer and that no one else can claim the property legitimately. If it comes out later that someone else does have a claim on the property, the warranty gives the buyer legal recourse to take action against the seller.
Many home-buying transactions will include a default warranty of title, but they don't automatically come with this.
The premiums for title insurance can vary quite a bit price-wise, but if you're buying the existing owner's policy, the cost might be included in the property sale.
So what's the biggest takeaway? Do you need to buy title insurance since it's optional?
Having this coverage is a good idea because otherwise, you could be dealing with any situations like unpaid property taxes or fines for code violations. If this happens, you're financially on the hook as the homeowner.
Buying a home or any property is stressful, but you can do things to protect yourself and feel confident in the transaction, including buying title insurance.