If you are wondering if it makes sense to buy owner’s title insurance for your new home construction, you may want to read on. The cost of owner’s title insurance is very small compared to the costs you could incur if someone else asserts an interest in your property.
Reasons Why Buyers Need Title Insurance
Many buyers make the mistake of assuming that the title to the property they want to build a home on is free of any disputes. They assume that the prior owner, the developer, or the builder, has taken necessary steps to resolve any outstanding clouds on the title. Why incur the expense of title insurance? There are a few important reasons.
1. Your Mortgage Lender Will Require Title Insurance.
Title insurance is to protect the lender’s interest in their collateral—your property—even for new construction. If title insurance makes sense to the lender, it should make sense for you.If you are financing any part of the purchase or the construction, your lender will require you to have a lender’s title insurance policy as a condition to granting the mortgage loan. A lender’s title policy only protects the lender—it does not protect the owner.
Mortgage lenders regard title insurance as an important way to protect their own interests in the transaction. Why would title insurance not be of similar importance for you? After all, you put your own financial interests at risk when you become the property owner.
2. Owner’s Title Insurance Protects Your Ownership
A title search is necessary even when you buy property from a real estate developer that you presume has already performed a thorough title search. Despite even the most exhaustive title search, title defects and issues can arise after closing that can cost you significant amounts of money and put your ownership interests in question.
Sometimes a developer will buy a large parcel and subdivide it into numerous lots. It is not unusual for the entire parcel to be subject to claims not discovered in the title search performed by the developer. Some common types of title defects that arise post-closing include:
- Undisclosed spouse with a community property interest;
- Forgeries, which can be by a prior buyer, seller, notary, or witness;
- Problems with a power of attorney;
- Sale without an heirs’ permission, or later discovery of an heir of a former owner;
- Title recorded but not properly indexed;
- Problems with liens, whether tax liens, judgment or child support lien, prior mortgage, boundary or setback agreements;
- Discovery of will that affects the property; and
- Undisclosed pending legal action against the property.
3. Owner’s Title Insurance Protects You Against Title Issues
When you are purchasing a new home that will be constructed, you can protect yourself against contractor’s liens (also called mechanic’s liens and construction liens). A contractor’s lien can arise when a contractor or subcontractor who performed work on the property or a supplier of materials used on the property were not fully paid. The contractor can file a lien for payment against the property on which the work was performed.
In many cases, the title search will identify such a lien if it is properly filed before you close. However, there are times when a lien is not discovered. That can happen when a properly filed lien is not discovered because of an error by the county records clerk.
When the error is an administrative error such as this one and not the fault of the contractor, the contractor may still assert its lien rights.
Other times a lien can arise is when the legal deadline for filing a lien does not expire until after your closing. The title search may not discover that lien because it has not yet been filed, but the contractor still has time to file it. Without owner’s title insurance, you would have to pay out of your own pocket the costs of resolving the contractor’s lien.
4. It covers Your Legal Expenses
When you buy owner’s title insurance, you will pay a premium. The cost of your premium is significantly less than what you could spend in legal fees to defend your title interest. In some cases, there is the possibility you could lose your property and find yourself without resources to replace it.
5. Will Protect Your Heirs
Owner’s title insurance remains effective for as long as you own the property, and for as long as your heirs own the property. It allows you to pass the property on to your heirs with the knowledge that their rights to the property are fully protected.
Contact the Title Experts At Mathis Title Company For More Information
For your new home construction, get peace of mind with the help of Mathis Title Company. The title experts at Mathis Title Company have the legal background and real estate experience you want to ensure a trouble-free closing and title insurance that suits your needs.