Purchasing a home is an exciting time for anyone, but that joy can soon fade if problems - such as lost or forged deeds or liens on the property - are revealed. Title insurance can protect buyers.
Examples of common title defects:
Lost, forged, or incorrectly filed deeds. Deeds are the documents that show who owns the property, and if not filed correctly, can lead to unclear ownership rights. This can include titles filed in the wrong name or titles never filed at all.
Fraud. This can take many forms such as falsified documents making it appear as if the mortgage is paid off.
Mechanic’s liens. Unpaid contractors, homeowner association dues or property taxes can result in liens on the property.
Encroachments. Physical structures, such as a neighbor’s fence, that intrudes on the legal property boundary can create title issues at closing.
Types of title policies: Owner’s and lender’s are the two primary types of title policies.
An owner’s policy protects you for the purchase price of your home plus legal costs if a title or ownership issue arises. It is usually issued for the amount you paid for your home and will cover you as long as you own an interest in the property. An owner’s policy is not required but is a good idea to protect your own financial interest in the property.
A lender’s policy protects the lender if a title or ownership problem comes up after the property is purchased. Unlike an owner’s policy, the dollar amount that would be paid if there was a problem with the title decreases as you pay off the loan and ends when you pay off your mortgage. A lender’s policy is usually required to get a mortgage loan.
THINGS YOU SHOULD KNOW
Know who you’re hiring: People often choose a title insurer and/or closing agent based on a referral from their real estate agent, lender, or home builder. Get quotes from multiple companies to ensure you are getting the best price. Check with your state insurance department to make sure the company is licensed to operate in the state.
Start early: Once you have a signed agreement to purchase real estate, you have all the information you need to start getting title insurance quotes from companies. Start searching early to avoid delaying the closing. The buyer and seller don’t have to select the same title or closing agent so shop around to find the best deal for you. In some locations it is customary for the seller to pay for the lender’s policy, read your real estate contract to find out who is responsible for the title fees.
Be cautious: Real estate often includes transferring large sums of money between buyers, sellers, banks, and closing agents. As a result, they are also a target for cybercriminals. Call your closing agent and lender right away if someone proposes a change to the payment transfer. Check email addresses closely when transacting business online. Call your closing agent and bank right away if something doesn’t seem right.
After closing, check that the deed was recorded in the county records: You can call your county recorders office or check its website to confirm the deed was recorded properly. Ensure the name and address is correct. If you received a loan to buy the property, check for the trustee’s deed as well which will have the lender’s name and the property address.
Keep a hard copy of your title policy and closing protection letter in a safe place: Title insurance safeguards your ownership rights for the entire time you own the home or property. You will need the policy documents to submit a claim. Title defects may not be found until you sell a property.
TOP FOUR THINGS TO REMEMBER
A lender’s policy only covers the lender, so to protect your own financial interest, consider purchasing an owner’s policy.
Shop around for title insurance, even if you receive a title insurer recommendation from your real estate agent, lender or builder. Only by comparing prices can you ensure you are getting the best deal.
Take cybersecurity seriously when communicating transaction details through e-mail and ALWAYS pick up the phone and call the closing agent and lender to verify payment transfer details.
Keep a copy of your policy in a safe place. You will need this information to file a claim.