What Is Title Insurance?
When you purchase a property, you gain ownership of a document called the deed which transfers the title of the home to you. Once your name is written in the deed, you can prove your legal ownership of the property.
Sometimes, however, problems can occur after the sale. The previous owner may refuse to sign the deed to you, you may have trouble registering the title, or you might run into unforeseen circumstances. Title insurance is used to protect your lender from losses related to ownership disputes, debts or liens against the property, land fraud, errors in land assessment, and more.
Title insurance can also be called a loan policy and is always mandatory. This insurance policy protects the interests of your lender and ensures that they have priority on the ownership of the property over other debts or liens. Whenever you take out a mortgage, the lender’s title insurance will be included as a mandatory fee, usually as part of your closing costs.
The great thing about title insurance is that you only need to purchase it one time and can then pass it down to any heirs, spouses, or children. Title insurance is a one-time fee and can cost as little as $250 but will often cover the entire value of your property. In most cases, your lawyer will purchase title insurance on your behalf when closing with your lender.
It is important to note that title insurance is not the same as property insurance. Title insurance will only cover claims related to your property's ownership, not the property itself.
Different Types of Title Insurance
Typically, there are two types of title insurance. Lender’s title insurance is the most common type of title insurance and is always mandatory. This type of insurance protects the financial interests of the party supplying your mortgage and makes sure they have first claim on the property if any title disputes do arise.
Owner’s title insurance is optional and can be purchased on top of lender’s title insurance. This type of insurance protects you, the homebuyer, and covers the financial damages that can arise from title-related claims.
Why Do I Need Title Insurance?
Title insurance can protect you and your lender from a wide range of unforeseen claims and disputes following the purchase of your home, especially in the following areas:
- Legal Expenses. In defending the ownership of your home, you may need to take matters to court. Your title insurance can cover all legal expenses relating to the ownership of your home, saving you thousands of dollars.
- Gap Coverage. Suppose any problems arise between the moment you close the sale of your new home and the moment you are officially registered as the property owner. In that case, gap coverage will cover the associated expenses. These include mistakes in your title documentation, survey errors, fraud, etc.
- Property Surveys. Before a home is sold, a property survey is conducted to determine the boundaries of the land and identify underground elements that may need to be repaired, such as septic tanks. A second property survey is usually conducted after the sale of the home to mend any disputes. Property title insurance can cover this second property survey.
- Debts, Liens, and Easements. If the previous owner of your home is negligent, you may find yourself inheriting previously unpaid maintenance fees, utilities, or taxes. Title insurance can protect you against these costs and cover any associated fees. You also have protection in the case of easements such as the need for city services to access parts of your property.
- Comprehensive Coverage. This area includes any other fees or costs associated with your title ownership. Your insurance provider can provide a more detailed list of your coverage options upon inquiry.
Unfortunately, title insurance cannot protect you against every possible event. Your insurance will not cover infringements on your property rights if they were caused by actions you took that were preventable or avoidable. This includes failing to make your maintenance payments or neglecting your property taxes. You also cannot receive coverage for land disputes tied to the land of Indigenous peoples, government seizures, or environmental concerns.
Do I Need Owner’s Title Insurance?
Title insurance continues to protect you and your inheritors long after the purchase of your home. Most homeowners are surprised to learn that a title claim can occur at any time, even if you've owned the property for a long time without any issues. For instance, it may be possible for the previous owner to have sold you the home without realizing that another party inherited ownership of the home through another legal means. In this case, you will likely have to dispute your home’s ownership in a court of law.
How Do I Invest in Title Insurance?
When you complete your mortgage application, your lender will likely inform you of their title insurance policy. In most cases, your agent or lawyer will acquire title insurance on your behalf and factor it in as part of your closing costs.
Homeowner’s title insurance is not mandatory, but can be immensely helpful in protecting you and the inheritors of your property. In addition to the protections previously mentioned, title insurance can provide you with compensation in the event of a fraudulent deed and protect your ability to sell your home later on, even if errors are discovered within the deed. In short, it compensates you for hidden information that may have impacted your decision to purchase the home if you had known beforehand.
The good news is that there are no strict deadlines on title insurance purchase. Some lenders will let you buy title insurance even if the sale of your home has been completed. There will be some differences between the policies available before the sale and those available afterwards, but you still have access to all the major benefits. The best way to compare your options is by talking to a Clover Mortgage broker to learn about the policies and choices you have.
Contact Clover Mortgage to schedule a free consultation today!