If you’re a homeowner, you likely know about the importance of title insurance — which shields both the buyer and lender in a real estate transaction — and the many benefits it offers. However, you may not know when in the transfer of ownership process you’re allowed to purchase an owner’s title insurance policy. Here is a close look at this subject.
Can I Buy Owner’s Title Insurance After Closing?
The short answer to this question is “yes.” You can purchase title insurance after closing on a new property and completing all of the associated paperwork. However, it’s often highly recommended that you don’t wait until closing to buy your policy for one primary reason: there are several types of issues that may arise just after closing but before you acquire a title insurance policy. Therefore, be sure to obtain a policy as soon as possible in order to avoid this risk.
Here are some examples of scenarios where purchasing title insurance prior to closing can be an especially wise decision.
Public Records Errors
Say that your title company inspects public records on your new home and initially finds no errors. Several months later, it discovers a problem (e.g. a typo in the name of the property’s previous owner, an inaccurate description of the home, etc.) and is forced to rectify the issue. The title to your property may then be challenged. If this error occurred after you closed but before you obtained title insurance, your policy may not cover it. Thus, you may likely be forced to spend more money to resolve this issue.
Another scenario would be one that involves the previous owner of your home neglecting to compensate a subcontractor for work (e.g. renovations) completed on the property. In this case, a lien would likely be placed on the home.
Most title companies won’t detect this type of problem immediately. Therefore, your policy likely won’t protect you if you bought it after closing and after the company resolved this issue. Liens are just one example of a title defect that can make your home difficult to sell or finance in the future.
Sellers Who Are Estates
In cases where the seller of a property is an estate, there is often the possibility that heirs and fiduciaries of said estate commit illegal acts that impact the validity of the sale of the property to you, in addition to several other types of problems that may lead you to sustain significant financial losses. Heirs can contest matters pertaining to finances in a relative’s estate even if the executor is not a family member.
Keep in mind that if you don’t have owner’s title insurance, the process of resolving a title claim can be strenuous and expensive. In these cases, you must typically pay off the claim (which can cost up to several thousands of dollars) prior to appearing before a court and defending this claim, no matter how long the lawsuit takes to resolve. You’re also responsible for paying legal fees. If you lose your case, you’ll be required to pay the full claim. You could also risk foreclosure and losing any equity you have in your home.
As always, be sure to evaluate your unique risks and needs to decide whether you wish to purchase a basic or extended owner’s title insurance policy. Many title companies offer both types of policies, the latter of which covers things such as structural damages, living trusts, forgeries, and encroachments, as well as previous ownership covenant violations.
Speak To The Title Insurance Experts
Reach out to the professionals from Mathis Title Company to learn more about when to purchase a title insurance policy. We are dedicated to providing title insurance, legal advice, and other real estate services to both sellers and homebuyers throughout Northern Virginia.
Robin Mathis is an experienced attorney who has performed thousands of closings and who is highly familiar with both the buyer and seller sides of real estate transactions. Ann Andreatos is a title agent who has a great ability to spot errors in documents and missing liens.
If you have recently purchased a new home, it’s highly recommended that you buy a title insurance policy as soon as possible after closing. Failure to acquire title insurance can potentially force you to spend large sums of money to resolve defects in a property’s title. Therefore, it’s important to carefully assess your needs and risks and decide accordingly whether you want a basic or extended owner’s policy.