Ask Andrew: What Is Title Insurance And Do I Need It?
Question: What is title insurance and do I need it?
A: The title of a property is what gives ownership of the property. When a buyer purchases a home, that person wants a free and clear title of any liens, loans or other fees that the previous owner had against it.
As a buyer, you not only want the title checked for those liens and loans, but you should want some type of reassurance that everything was found and nothing could come back to haunt you. That’s where title insurance comes in to play.
Title insurance is insurance that’s purchased to defend the purchaser and lender in the event that anyone challenges the purchaser’s title. It’ll also help compensate the purchaser in the event that the purchaser loses.
When you purchase a home, a settlement company or agent (title company) reviews the property records to ensure the seller really owns the property and is free to sell it.
The settlement company looks for any clerical errors, undisclosed heirs, mistakes, omissions in deeds, forgery, easements, unknown liens or fraud involving the deed to ensure the seller has the right to sell it and the buyer is protected from any unknown issues.
After the settlement company has reviewed the title, an underwriting company issues an insurance policy for protection. Typically two policies are needed: a lender’s policy and an owner’s policy.
A lender’s policy is to protect the lender’s interest in the property. Most lenders will require the buyer to purchase a lender’s policy. The lender’s policy is usually based on the dollar amount of the loan and decreases each year until it eventually disappears as the loan is paid off.
An owner’s policy is to protect the purchaser’s interest in the property. This policy is not required, however it is strongly recommended. The policy is purchased for a one-time fee at settlement, which is based on a percentage of the purchase price and the type of policy purchased. An owner’s policy is valid for as long as the owner, or his or her heirs, have an interest in the property.
Even though purchasing an owner’s policy is not required, I highly recommend it.
You never know what was missed on the title search and the last thing you want is to lose the house you thought you bought because the person selling it to you didn’t have the right to.
At the same time, you don’t want a lien or a loan to have been missed and you as the new owner to get stuck with the responsibility of having to pay it.