Buying a new home can be an exciting time, but there is also a lot of paperwork to navigate. While many buyers go into the process expecting to deal with mortgage applications and closing documents, one aspect that can be confusing for new homeowners is title insurance.
How Does Owner’s Title Insurance Work?
When purchasing a home, you will be given a deed that shows the seller transferred legal ownership, or the “title” of their home, over to you. The real estate title is a collection of documents that prove you have the right to own the home and may include reports and records known as the “chain of title” or “property abstract” that detail the property’s former owners.
This will also list any known potential encumbrances, such as an easement that may allow hunters to pass through the yard to reach hunting grounds.
However, there is still a chance that other encumbrances may arise later or someone may challenge your ownership of the property at some point due to an event related to a previous owner. Owner’s title insurance aims to protect you in this situation.
Unlike car insurance, which protects you against events that could happen in the future, title insurance protects you from problems that happened in the past, even if you are unaware of them at the time you buy the home and take out the policy.
Most lenders will require homebuyers to get a lender’s title insurance policy to protect the amount of money they lend, but getting an owner’s title insurance policy offers an additional layer of protection for your personal financial investment in the home. Lender’s title insurance only protects the bank’s money; it does not protect your equity or you as an individual homeowner.
It may be possible to save money by getting both policies from the same title insurance provider. This type of insurance tends to be inexpensive and is a one-time fee that covers you for as long as you own your property.
What Exactly Does Owner’s Title Insurance Protect Against?
When you buy owner’s title insurance on a property, a full search of all public records will be carried out that often dates back to before the home was even built on the land. This search looks for anything that could have occurred throughout the chain of ownership that may impact your ability to claim free and clear ownership of your property and access to it.
Claims Against Your Home’s Title
Owner’s title insurance gives homeowners protection in the case that someone sues them and says they have a claim against the home in question from before the homeowner took possession of it. This could involve an old mortgage that was never paid off entirely, unpaid inheritance taxes, or lost heirs who could have a claim to your property. There may also be divorce issues where a property was not conveyed properly from one spouse to the other.
Protect Financial Investments
Unpaid contractors may have filed a mechanic’s lien against the property, or there could be unpaid IRS or state tax liens or bankruptcy issues. A previous foreclosure might have been processed incorrectly, or there could be unpaid real estate taxes or municipal liens. Owner’s title insurance offers protection in these cases.
Missing Or Undisclosed Information On The Property
In some cases, the previous owner of a property may have bequeathed it to their heirs in a newly discovered will, which could lead to a costly court battle. There may also be some disagreements about the location of the property line or an unusual easement that gives other people access to your property that was not disclosed at the time of purchase.
Owner’s title insurance can also offer protection against defective paperwork, such as improper recordings from closing and escrow. In some cases, improper or forged title documentation can be a problem, as can transfers of the deed that are later somehow determined to be illegitimate.
In all of these cases, an owner’s title insurance policy can protect you against financial loss up to the price you paid for the property, along with the legal fees you incur protecting your interests in your property.
Contact Owner’s Title Insurance Experts
Although owner’s title insurance is not required, it is highly recommended given the peace of mind it provides for a relatively low price. There may be a higher potential for claims when buying a foreclosure home, but even newly constructed homes can benefit should problems emerge regarding the previous owners of the land on which the home is built or the builder’s failure to pay a contractor during construction.
If you are interested in learning more about title insurance and how it can benefit you as a homeowner, reach out to the owner’s title insurance experts at Mathis Title Company.