Friday, September 7, 2012

Title Insurance: Who Needs It?

If you're in the escrow or title process, you may have some questions about title insurance. While it isn't a requirement, there are several reasons to seriously consider protecting yourself financially.

Reasons to Consider Title Insurance in a Real Estate Transaction

If you require a mortgage to purchase a piece of property, your mortgage lender will always require a title insurance policy to protect them from financial losses that can occur if there are any title defects on the property. Owners can decide whether they want a policy or not.  There are two types of title insurance policies:
  • Lender's Title Insurance: Mortgage companies require that a title insurance is taken out to protect their interests.  The policy does not protect the individual(s) purchasing the piece of property.

  • Owner's Title Insurance: This title insurance policy is separate from the lender's insurance policy and covers the financial interests of the buyer(s) should title defects emerge prior to the close of escrow. It also pays for court fees in case litigation ensues.
When you purchase your policy, it will protect yourself from title discrepancies that occur from the purchase date and backwards through time.  It does not protect you from anything that happens on your title from that day forward.  However, it does protect you for the lifetime of your property ownership. So, should one of the following scenarios occur, even 10 years after you purchased the home, your title insurance will still work.

Why is Title Insurance a Good Idea?
Should title discrepancies arise regarding the real estate transaction in question, your title insurance will pay for the title company to do the work and clear your title, rather than having to assume the responsibilities yourself. Here are a few different scenarios to  illustrate why having an owner's title insurance policy can be beneficial.
  1. The title isn't completely cleared.  While it's true that title companies, lawyers, and educated buyers can run title searches to see if a property's title is clear, there can be discrepancies.  Take a situation where a husband and wife own a piece of property. They sell it. Only the husband signed the closing documents.  Legally, the wife might have a claim to that piece of property and can come forward to contest your purchase.
  2. An heir comes forward. Your property might have been sold to you by a deceased owner's heir.  Unbeknownst to you, there was another person(s) entitled to that piece of property.  The heir(s) can come forward and contest your real estate transaction.
  3. Forgeries. It could come up that somewhere in the history of property ownership, someone forged documents to sell the property. Once the forgery is discovered, the true owners can come forward and sue.
  4. Improper recording.  This could be an improper recording of previous deeds or tax liens. Once the discrepancy is discovered - potentially years down the road - you are protected from any financial responsibility.
  5. Building/Development issues. While it is not (yet) standard, some title companies offer enhanced construction coverage to protect owners from issues that emerge after the date of the title insurance policy, such as inaccurate surveys, vendors that weren't paid and place a lien on the property and so on.  If you're in the middle of a new construction real estate transaction, this might be worth looking into.
If you're confused about whether or not to purchase title insurance, speak with a real estate lawyer, or insurance agent, about your situation.  They will help you decide whether or not it is a good investment in your real estate situation.

1 comment:

  1. Glad you mentioned about seeking the help of a real estate lawyer because that is really the wise thing to do. If you hail from Boca Raton or any other area near it, consider the Law Office of Kristin Coomber for any real estate legal advise. Their group of lawyers can also help you in title insurance and even business related legal problems.