The Value of Title Insurance
Buying a home can be overwhelming. Homebuyers can feel confused and frustrated by the closing process. Plus, all the fees associated with closing can sometimes be a surprise even to an experienced buyer.
Owner’s title insurance is one of those items often misunderstood by homebuyers at closing, yet its value is tremendous. To help you understand how owner’s title insurance works, here are answers to common questions.
What is title insurance?
Owner’s title insurance is a policy that protects homebuyers’ property rights. For the same reasons that the bank requires a lender’s insurance policy, a homebuyer obtains owner’s title insurance to protect their legal claims to the property.
What does owner’s title insurance cover?
Sometimes undiscoverable defects can come up after the title search. Under an owner’s title insurance policy, you are protected against certain undiscovered errors in the title.
Title issues include unknown:
- Outstanding mortgages and judgments, or a lien against the property because the seller has not paid his taxes
- Pending legal action against the property that could affect you
- Heir or interested party of a previous owner who is claiming ownership of the property including ex-spouses/estranged spouses
Unforeseeable title claims include:
- Forgery: making a false document
- For example, the seller misrepresents the identity of the person who sold the property.
- Fraud: deception to achieve unfair gain
- For example, someone steals your identity and either sells your house without your knowledge or consent, or takes out a second mortgage on the property and walks away with the money.
- Clerical error: inconsistent paperwork and historical records
- For example, an unforeseeable discrepancy in the property or fence line can cause confusion in ownership rights.
How it protects
Say, for example, you recently purchased a new home from a builder, but the builder failed to pay the roofer. Wanting to be paid, the roofer filed a lien against the property. Without owner’s title insurance, you would be responsible for paying this existing debt—meaning you would be paying the roofer out of pocket instead of purchasing something nice for your new home, like new living room furniture. This is just one example of how owner’s title insurance protects homebuyers’ from various significant risks. With owner’s title insurance, you would be protected from certain legal or financial responsibilities.
A family in Missouri unknowingly purchased their home from a seller who had taken out a separate $419,000 loan on the property. But this fact was not discovered during the closing process, and the family’s lender paid the seller directly instead of paying off the existing loan.
Soon, the family faced foreclosure because someone else held a claim against their title. Fortunately, the family had owner’s title insurance. So the title company paid the debt, and the family kept their home—with peace of mind.
This story has a happy ending, but without owner’s title insurance, the family could have faced serious costs, and even eviction.
The good news is that owner’s title insurance protects homebuyers financially, as long as they or their heirs own the home. For a low, one-time fee (average of 0.5% of purchase price), homebuyers can rest assured, knowing they are protected from inheriting existing debts or claims to their property.
For more information, check out our blog, contact us, or visit www.homeclosing101.org. Don’t forget to request a Luckett location on your next real estate contract!