Title insurance protects property buyers and mortgage lenders against defects or problems with a title when someone is buying a house. There are two types of title insurance policies that are typically purchased.
The first type is the owner's policy, which protects the new owner, and the second is a lender's policy, which protects the lender. The purpose of title insurance is to protect the buyer and lender against potential loss and liability if something in the documentation or process of title transfer for the property is wrong.
Securing title insurance is a standard step in a real estate transaction, with different types of title insurance protecting both you and your lender from litigation if the seller does not have free and clear ownership of the property. Most lenders require that you purchase title insurance. You only pay for title insurance once and it will remain in effect until you sell the property or refinance.
Title Insurance Process: Title Search
Before a buyer obtains title insurance, the first crucial step to buying a home is to make sure that the home or property is legally available to be sold and purchased.
Title searches are now conducted as part of the standard real estate transaction to help prevent any issues in the purchase. A seller must have free and clear ownership of the property, which means they can rightfully and legally transfer full ownership of the property to you.
Your attorney or real estate agent’s attorney typically conducts the search. The search generally involves reviewing public property records to ensure that there are no errors in the property’s title.
Also, to ensure that no other issues such as potential undisclosed heirs, or omissions in the property’s deed, unknown leans on the property, or any fraud related to the property deed. If a title search comes up “clean”, then it has been determined that the seller has the legal right to sell and transfer ownership to the buyer.
Title searches are conducted through public records. These records are searched to find all documents relating to the title. The documents are then examined and used to develop the history of ownership. A title search can discover:
- The current status of ownership;
- The current owner; and
- Limitations of the owner's property rights such as mortgages, easements and liens.
Once the search is complete, the information is then used to determine the amount of title insurance needed.
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How to Secure and Pay for a Title Insurance Policy
Buyers generally do not conduct title searches or find title insurance. The attorney or real estate agent you hire should initiate the process. Typically, your attorney’s office will handle the title search, and either your attorney or agent will choose a title insurer.
Title insurance costs vary and are usually paid as a one-time fee as part of your closing costs. The cost of title insurance can range from a few hundred dollars to a few thousand dollars. Should an issue arise, your title insurance covers the legal expenses for investigating claims, litigation, or setting adverse claims against your title.
Why Do I Need Title Insurance?
Title insurance protects a buyer from potential property disputes. Generally, title searches that are done thoroughly determine the current and past status of the real estate you are trying to purchase.
But there is always the possibility the document was forged or a missing heir comes forward claiming the real estate is theirs. In these cases, title insurance is used to help deter any major financial losses.
If there are any issues with the title, then it can mean a lengthy legal battle for the new property owner. While title searches should be able to pull up any issues with the title, there are cases of fraud or where there is a pending lawsuit tied to the property.
In these cases, it is possible that the new homeowner can lose the property, along with any and all money they put towards purchasing it. Ultimately, title insurance is not really to protect the new homeowner but the lender, who will own the majority of the home until the mortgage is paid off in full.
Do I Need a Lawyer?
It would be advisable to seek the help of a local real estate attorney because the purchase of real estate is a significant investment, and protecting yourself against any liability is very important.
These attorneys can conduct or review any title searches, examine a title insurance policy, and help ensure that the transaction is completed legally and successfully.