The Importance of Title Insurance
Buying a home or business property may seem like it ought to be straightforward. You and the seller agree on terms, you arrange for a mortgage, you make the down payment, and just like that, the property is yours to do with as you please. Right?
Sadly, not necessarily. There are a number of title problems that could interfere your ability to use and enjoy your new home as you intended, problems that arise from the history of the property. You almost certainly were unaware of the issues, and it’s entirely possible the seller didn’t know about them, either. Some of the most common are listed below.
Title Insurance Protects Against These Problems
If an illegal immigrant, a person of unsound mind, a minor, or someone who misrepresented his or her marital status as single made a prior deed, this can call the present ownership into question.
It’s possible a previous owner failed to meet his financial obligations, and as a result, a creditor put a lien on the property. Even though you and that previous owner are different people, the lien may still be valid. This problem is particularly likely to arise in the case of distressed properties.
At some point, some unscrupulous person may have forged and filed documents pertaining to the ownership of your home.
Errors in public records.
These were probably simple clerical mistakes made without malicious intent, but they can still affect the deed or survey of a property and cost money to fix.
Missing heirs and contested and undiscovered wills
It’s possible that at some point, your property was handed down as per the terms of a will. It’s possible heirs were missing or unknown at that point in time, that the will is being contested by family members, or that the will has just now come to light, Unfortunately, these things can happen long after the previous owner’s death.
Survey and boundary disputes
Though you may have seen multiple surveys of the property, it’s conceivable that still others surveys exist and they show different boundaries.
The person who sells you your home may not be the only person who has a claim on it. A third party you don’t know about may have one due to a former mortgage or a lien as mentioned above. That person could also have a non-financial claim in the form of an agreement that restricts the use of the property.
An unknown assessment may place limits on how the owner can use a piece of property or give government agencies, businesses, or other people access on demand.
Finally, the person who sells a property to you may be impersonating the real owner. Thanks to common and similar names, this is sometimes easier than one would suppose.
The Consequences of Title Problems in the Absence of Title Insurance
All these problems can keep you from using and enjoying your home as you see fit or even deprive you of ownership entirely.
Title insurance exists to protect you from such headaches. Here’s how.
How Title Insurance Works
There are actually two kind of title insurance policy, one for lenders and one for owners. 87 percent of real estate purchases include both types.
The lender’s policy provides protection against title defects that could affect a mortgage or lien.
As the owner, your title insurance is a wholly separate policy that protects you against title problems that could compromise your ownership rights. Thus, unlike other insurance policies that protect against things that may happen in the future, title insurance protects against things that happened in the past that you don’t know about.
It’s also unlike other insurance policies in that you only pay for it once. It then protects you for as long as you own the property, although if there are going to be problems, they generally arise within the first six years. On average, owner’s title insurance costs about $2.50 per $1000 of purchase price.
Title Insurance and the Title Search
Prior to issuing a title insurance policy, the title insurance company conducts a title search. You want them to do this because the search can turn up problems before you actually make the purchase.
The process involves an in-depth search of public records. This can be complicated because a particular jurisdiction can file liens and judgments on a piece of property in a variety of ways. The buyer’s name, the owner’s name, the street address, and the lot number are only some of the possibilities. Fortunately, title insurance companies have devised sophisticated systems for reviewing all this information and have indexed large quantities of public data to make searches easier and more effective.
In addition to liens and judgments, the search process will turn up easements, building restrictions, and boundary issues if such exist.
Even in the case of new construction, a detailed title search is necessary because, while the house may be new, the land on which it sits may well have changed hands many times. It’s also conceivable that unpaid suppliers and subcontractors who helped build the new structure have placed liens on the property.
To summarize, the title search is a necessary part of the process of issuing title insurance, and it’s essential that you obtain such coverage from a title insurance company to safeguard you claim to your new home and ability to use, enjoy, and someday dispose of it as you see fit.