Your home is the typically the largest investment many people make during their life. As you begin to research the home buying process you’ll soon come across the term “title insurance” among the many new terms you will learn. There are other types of insurance you will need to get that are fairly easy to understand. You’ll potentially buy flood insurance to protect your home against rising water. You’ll get homeowners insurance to make sure that if something happens to your home, the costs to replace the home and your personal belongings is covered. Then there is that other insurance policy, title insurance. Title insurance is there to protect you against unknown issues that you’ve probably never thought of. We will help you to answer the two most common questions “What is Title Insurance?” and “Why do I need Title Insurance?”
What is Title Insurance
When you are purchasing a home, you’re not really purchasing the actual home itself, or even the land for that matter. What you are actually buying is the “title” to the property which gives you the rights to use and occupy the property. There are many things that can limit your rights to use and occupy the property, typically from other people, businesses or governmental agencies. Title insurance helps to ensure that there are no limits on the title and protects you against these title hazards.
Title insurance, unlike other insurance policies, is a one time fee paid at closing and protects you against title hazards prior to your ownership for as long as you own the property.
Two Types of Title Insurance
There are two types of title insurance:
- The Lender’s Policy
- The Owner’s Policy
The Lender’s Title Insurance Policy is required as part of obtaining a mortgage and protects the lender against any title hazards. The Owner’s Title Insurance Policy protects you as long as you maintain an ownership interest in the property. The owner’s title policy will also transfer and protect your heirs upon your death. These are separate charges and are both typically paid for by the buyer through closing.
What Does Your Title Insurance Premium Pay For?
The most important part of any title insurance policy is to eliminate any risk to the insurer prior to issuing a title insurance policy. This helps to protect you, and the title insurance company, against any potential title claims or losses.
The first step in this process is to search all public records relating to real estate. In Florida a title agent, or sometimes an attorney, will review the records to see if the title is insurable. The purpose of this review is to identify any “material objections” to the title that could impact your rights of ownership. Here is a short list of documents that can cause issues for you down the road if not reviewed properly:
- Deeds, Wills, & Trusts – These often have errors with incorrect names, missing signatures, or confusing/unclear language.
- Civil Judgements
- Easements from local governments or utility companies
- Pending litigation
- Other misc liens.
Hidden Title Hazards
While the goal of a title search is to uncover all material objections to the title, no title search is perfect which is why we have title insurance. Even after you close, there are issues and hazards that can come up. Some of these are:
- Forged seller signatures on the deed.
- A previously unknown heir to the prior owners.
- Public records errors.
Title Insurance Conclusion
Title insurance offers you protection against these and other covered hazards to the title. If hazards are uncovered after closing the insurer will pay all expenses related to defending the attack on the title. They will also pay for any valid claims against the title or perfect the title to protect you, and your lender. All this protection is given to you for a one-time payment that is charged to you during the closing.