Buying a home is one of the biggest decisions and purchases made in most consumers’ lifetimes. It is important to protect the investment with title insurance. Use the following tips to better understand and obtain title insurance for your property.
Tips for Understanding and Obtaining Title Insurance:
Understand Title Insurance. A title insurance policy provides assurance that you actually own the property you think you own. The purchase of title insurance buys you protection based on a title search of public records that trace the chain of ownership and guarantees the title is accurate as stated. The two types of title insurance policies include:
· Lender’s Title Insurance: Mortgage lenders in most parts of the country require lender’s title insurance. This type of title insurance is issued in the amount of the mortgage loan and protects the lender’s security interest in the real estate. As the mortgage is being paid off, the coverage amount decreases until it eventually disappears when the mortgage is fully paid.
· Owner’s Title Insurance: Owner’s title insurance is issued in the amount of the purchase price of the property. This type of title insurance will protect the buyer’s interest and the buyer will be covered for all valid claims on the title as insured.
Avoid Potential Title Problems. Before buying property, it’s imperative to know what rights the seller can pass on and if anyone else may have interest in the real estate that can affect your ownership and use of the property. Challenges to ownership can include claims by heirs, forged deeds, and mistakes in public records. Potential problems that could restrict the rights of the buyer may arise from adjoining landowners who enforce property restrictions, rights of a utility company building power lines on the property, or a lien from the government for back taxes on the property.
Get a Title Search. The title search will determine what restrictions there may be on a property. This can be a complicated process that involves a close examination of records with the office of recorders, register of deeds, clerks of courts, and other municipal officials. The title search uncovers records for all recorded judgments, street and sewer assessments, special taxes and assessments, and other documents that could influence the title of the property. Regardless of how thorough the title search is, there is always the possibility of problems that fail to show up when examining the public records. There is a wide list of problems that could cause financial loss or even the loss of the property if the buyer is not covered by title insurance.
Know What’s Covered. Owner’s title insurance is able to cover problems with the title that may have not shown up in the title search including:
· mistakes made in researching the title,
· errors in public records, and
· claims that appear after the title has been issued.
The title company will also cover legal fees that are incurred, should you ever have to defend your right to the title against a claim on the title as insured, as long as the purchaser or their heirs have an interest in the property. Title insurance excludes coverage of items the title search revealed as serious problems such as:
· mineral and air rights
· liens on the property,
· or difficulties related to easements.
It’s best to take care of these problems before the purchase. The coverage of defects you create after purchasing the property is not included. Additional coverage such as, inflation riders, are available from title insurers to increase the policy liability as the property value increases. Ask if you are obtaining “survey coverage”. Survey coverage may require an additional expense, but if your policy has a survey exception you will not be covered for encroachments.
Understand The Cost of Title Insurance. Title insurance is paid when the property is purchased and the one-time premium is usually included in the closing costs. Unlike casualty insurance, there is no annual or renewal premium. A real estate broker, lender, settlement attorney, or other real estate professional usually handles this purchase. In some locations it’s common for the buyer to have to specifically request and pay for the title insurance. It’s estimated the average cost for the owner’s title insurance policy is $3.50 per $1,000 and lender’s title insurance is $2.50 per $1,000, although the price depends on the local marketplace. When purchasing both types of title insurance together, the cost is often lower than when purchased separately. Depending on your location, the cost of title insurance and title search could be separated or the title insurance premium could include the title search, examination, and additional closing costs.
Research Title Insurance Policies. Your mortgage lender may suggest a specific title insurance policy, but it’s best to shop around for the best price for the amount of coverage given. Remember to check out the businesses at bbb.org to read reviews or complaints. Ask businesses for their rate schedule, as they may be able to bring down the price to earn your business. If you are buying from a seller who has only owned the property for a short time, ask if their title insurance policy can give you a “reissue rate” because less research needs to be done.
SOURCE: BBB.org (2014, May 1st) TIPS FOR TITLE INSURANCE, Author Rachel Willard (Finance BLOG POST). RETRIEVED FROM http://www.bbb.org/boston/industry-tips/read/tip/tips-for-title-insurance-148/