Everything Home Buyers Need to Know About Title Insurance

Buying real estate should never feel like a dirty deal. Do you get the feeling there’s something they’re not telling you? If you ever find yourself questioning the legitimacy of the seller’s word on what’s included in the deed, you need a title insurance agent to take a closer look.

Real property transactions present a challenge for home buyers on the outside. The average person doesn’t have much experience with buying homes. That’s where title insurance comes in, assuring the investment you’re about to make is valid and protected from losses. After all, it may be the largest transaction you’ll ever make.

WHAT IS TITLE INSURANCE?

A title insurance policy is a form of real estate indemnity protection that protects buyers from the ownership problems of a property’s past. Title insurance differs from traditional insurance such as home and auto because it protects the policyholder from past occurrences rather than future losses. Examples of title insurance claim include:

• Undiscovered liens
• Omitted heirs
• Fraud
• Errors in the public record

Opting out of title insurance exposes the parties involved to significant risk in the event a title defect is present. Imagine you’re a home buyer searching for your next house and discovering there are unpaid property taxes from the previous owner. Well, without title insurance, the financial burden of this claim for back taxes is now in your hands and no one else’s.

It’s important to note that title insurance will require an extensive title search of the property. By utilizing this type of search, the potential for any foreseeable title issues is minimized.

 

THE TITLE SEARCH AND CHAIN OF TITLE RECORD

 

You want to be sure there will be no surprises following your settlement. Conducting a thorough title search ensures that you don’t overlook any inconsistencies with what you’re paying for and what you get. Believe it or not, without an experienced title agent, you could lose your claim to the property even if you’ve already paid for it!

The main reason you need title insurance is to research the chain of title and uncover exactly who holds possession of the title or what will be granted to the new owner upon transfer of the deed.

Common issues uncovered during the title search include:

• Unpaid taxes or Tax Liens
• Overdue construction or renovation bills or Construction Liens
• Outstanding balances on preexisting mortgage
• Court judgments awarding the part of the property to a former spouse

 

TITLE INSURANCE PROTECTS AGAINST OWNERSHIP CLAIMS

 

One of the main reasons a home buyer needs title insurance is to protect against claims of ownership. How can you be sure the sale is legitimate? There are instances where a person may pose as the owner and rightful seller of the home, but you find out they’re not. This is up to your title insurance agent. The rightful owner of the property can be found by searching the “chain of title” through publicly recorded transfers of ownership.

It’s imperative that as a home buyer you understand if a title search uncovers any egregious issues with a title, such as:

• The property being owned by a third party and the current seller had no right to the sell.
• One or more transfer instruments was forged.
• A minor was involved in the previous sale.
• There’s no right of access to the land.

Your lender may refuse to issue a mortgage on the property, and you would be forced to walk away.

 

WHAT TITLE INSURANCE COVERS

 

It’s common for lenders and buyers to hold separate title insurance policies protecting their individual interests for the property in question. A lender policy will protect the mortgage lender’s interest in the policy, which will decrease as the loan is paid off. Once the loan is paid in full, the title policy is no longer needed.

However, on the contrary, a buyer policy will be in play for as long as the buyer has an interest in the policy. Without title insurance, the financial burden of this claim for back taxes is now in your hands as the buyer and no one else’s. You’ll either pay the outstanding property taxes or worse – possibly lose the home. With title insurance, however, the coverage protects you as a buyer.

UNDERSTANDING WHAT TITLE INSURANCE PROTECTS

Title insurance protects a home buyer from the potential devastation that past ownership problems could bring. Let’s say a long-lost relative with a legit ownership claim comes forward alleging they never approved the sale of the home. As a new homeowner, you could lose everything.

A title insurance policy will cover the professional labor necessary to find and fix these types of issues before they turn into a significant financial loss.

 

HOW ISSUING A TITLE POLICY WORKS

 

The cost of title insurance premiums can range from a couple of hundred dollars to a couple of thousand dollars. Some factors that may affect the cost of your premium include the title search, examination, and expected expense of any title defects. A rough estimate of title insurance is about $1,000 per policy, but the amount varies widely from state to state and depends on the

value of your home. A one-time payment is made when or before you close on your house.

Other variables that may affect the price of title insurance include:

• Bundle discounts
• Geographic location
• Negotiations with seller
• Negotiations within full components of the policy
• Purchase price
• State regulations

Some states (like Florida and Texas) have regulations where the government puts a fix on the title insurance premium. Rest assured that working with a trusted title insurance company makes the process smooth and simple, giving you personalized protection, so you can be confident about this big purchase decision.

 

WHO PAYS FOR TITLE INSURANCE?

 

Typically, it’s customary for the seller to pay the costs of the home buyer’s title insurance policy issued to the new homeowner. Mortgage lenders may require a title insurance policy as well. It’s common for the lender’s policy to be paid by the home buyer.

In the end, the homeowner’s and lender’s policies are paid out from closing proceeds. The cost of the homeowner’s title insurance policy is added to the seller’s settlement statement at closing while the buyer purchases the lender’s policy before closing.

Fortunately, there are opportunities in many states to save money when it comes to your title insurance policy. These can include:

• Title insurance for new construction sometimes has discounts
• “Reissue Credits” may be available if another policy was recently purchased
• Bundling of the Owner’s and Lender’s policies is sometimes available
• Negotiate with the seller
• Discuss any add-ons with your provider

Remember, discounts are not guaranteed. However, it’s indeed worth asking your title insurance company if you qualify. You want to make sure you’re well-protected, but you may be able to save money that you can use toward the full purchase of your home.

 

RECORDING YOUR NAME ON THE DEED

 

Your closing agent is responsible for filing your name on public record upon transfer of the property from the seller to a buyer. Steps to remember are:

• The seller will sign a deed that shows you’re the new owner.
• The deed will contain the following:
  • The legal description of the property.
  • Name of the current owner the same way it appears on the current deed.
  • Name of the new owner – you.
• The title company’s escrow agent will notarize all signatures.
• The title company takes the deed to the county recorder’s office.

You then are the official owner! These steps are essential to you taking possession of the property. After the closing date, get ready to grab your keys and move in.

Title insurance doesn’t have to be complicated. When you have a team that approaches every file as if it were their own home, it actually becomes very straightforward. Want to learn more about title insurance? You can find our title insurance guide here.

 

PLANNING TO CLOSE ON A HOME SOON?

 

At Bay National Title Company, we bring you peace of mind and better closing experience. Our expert team provides an unparalleled level of service, exhausting every method to ensure you receive the information you need to close on time confidently. Contact us today to talk with one of our real estate and title insurance experts.

We offer services for buyers and sellers of all types. Our dedication to our customers is in our everyday actions, and our top concern is to alleviate customer title concerns through open communication and meticulous work.