Title insurance serves a valuable purpose for you for the entire time that you own a property, but most people do not give it a second thought besides noting its presence as one of the (many) line items at closing. In fact, some individuals select not to purchase title insurance in order to bring the overall cost of closing down.
However, title insurance claims are a relatively frequent occurrence, and some types of issues arise much more common than others. Whether you are considering purchasing title insurance or you already closed on a home and wonder what your new title insurance does for you, you can equip yourself to face any potential issues with your title by understanding the most common problems.
What Title Insurance Actually Does For You (And Your Lender)
Title insurance itself serves as protection against issues with your property’s title, or the documentation that keeps track of the history of the property and who owns it. Because a mistake in a title could mean that you are not correctly shown as the owner of the property, title issues can be severe enough to cost you significant money or even result in you losing your home. This is what title insurance exists for.
It defends you against these issues, such as mistakes made during title transfer. Lenders (the people who supply your mortgage) will typically require that you purchase title insurance for them; this is a separate policy that does not cover you, but it protects their investment should something be wrong with the title. Since lenders view it as important enough to require you to purchase it for them, it is wise to consider a policy for yourself as well.
Lines Of Equity Still Open On The Property
Among issues brought by title insurance policyholders, discovering open equity lines is a fairly frequent one. In the last few years more than ever, people have been tapping into their home’s equity. The most common situation is that borrowers refinance their home with the intent that the proceeds will pay off their outstanding mortgage(s). However, if the proceeds are not sufficient to close those accounts, a new buyer may discover that those accounts are still open after they purchase the home.
Inappropriate Execution Of The Title
Executing the title itself by filling out all of the documentation and properly notating the new owner of the property is the purpose of closing; unfortunately, sometimes this documentation process can go awry. That is why inappropriate execution is the most common claim brought within title insurance policies. Whether the problem is that a person’s name was not spelled correctly or that the signed documents were not appropriately notarized, any challenge that can compromise the integrity of the property transfer must be handled as soon as possible to ensure that the buyer still has a legal claim to the home.
Problems With Closing Itself
Sometimes, the closing process itself grinds to a halt due to unexpected issues, and in the most extreme cases, borrowers or buyers must actively proceed to legal action against the other parties in the transaction. This can occur, for example, if the seller has committed fraud or if the escrow company loses the buyer’s money. Even after closing has occurred, title insurance can still protect you from issues that arose during this time period.
Priority Disputes Due To Foreclosure And/Or Bankruptcy
“Priority” refers to the order in which debt is paid off if an individual sells a property. For example, if a seller had two mortgages, priority would dictate which would be paid first, especially in the event that selling the home did not cover the costs of both. Priority disputes almost always arise as a result of a foreclosure that moves on to a sale or a bankruptcy. However, priority can quickly become complex, and the answer to who is entitled to what first may be muddy. Title insurance can cover you if you discover these issues during a title search and are affected financially.
Trust the Experts to Help Keep You Secure
Title insurance is a powerful tool to secure your investment in your new home—a purchase that, for many people, will be one of the largest they will make in their entire lives. It is worth spending a small percentage of your home’s amount for an insurance policy that you carry with you for your entire ownership journey. The experts at Mathis Title Company would be happy to help you navigate your title insurance claims or secure a policy that is right for you. Reach out to learn more or to get started.