When homeowners purchase a property, the protection that mostly springs to mind is homeowner’s insurance. This type of policy, which protects against sudden, unexpected problems like wind damage or fires, can go a long way toward keeping a new home safe.
However, it does not cover a wide range of issues that relate to the property’s title—the document that records ownership and other important details, as well as how they have changed over time. This might not seem like important information, at first glance. What does it matter who owned the house in the past if you own it now? But title insurance is a critical element of keeping your investment in a property secure.
What An Owner’s vs. Lender’s Policy Covers
The next most common assumption that homebuyers make is that they have already purchased title insurance because there was a line item for it during closing. Unless the buyer specifically approves a policy for themselves, what usually happens is that the lender requires the buyer to purchase title insurance for the lender. A lender’s policy protects the entity that is funding the mortgage from loss should a problem arise with the title; it offers no protection at all to the buyer themselves. They will need their own separate owner’s policy in order to see any protection in the event of a title issue.
Problems with a property’s title come in many forms, but the most common are the following.
Liens On The Property
A lien is a claim against an asset for the purpose of paying off debt. If a home was previously used as collateral on a debt and the debtor failed to pay what was due, the creditor is legally permitted to seek compensation by putting a lien on the home. Liens should be disclosed before a property is sold, but sometimes they are not properly documented.
A buyer could purchase a home and later discover that it does have liens on it that remain unpaid. If this is the case, the current owner would be responsible for paying off the liens, even if they were not the ones who caused them in the first place. Title insurance defends against undisclosed liens.
Claims Of Adverse Possession
The rule of adverse possession exists to prevent empty properties from going unused. If a person (like a squatter) resides in a property long enough, they may make a claim of adverse possession to gain legal rights to the property. If a buyer tries to purchase a property for which someone tries to claim adverse possession, title insurance can protect against this legal claim.
Formerly Unknown Or Undisclosed Heirs
Some of the strongest claims of ownership to a property come from heirs because they are legally granted ownership due to enforceable documents such as wills. Sometimes, when a will is executed, the heir who is intended to receive the home cannot be located, or the executor does not know that they exist. If the heir appears later, after a new buyer has purchased the home, they may claim ownership at that time unless the owner has a title insurance policy.
Fraud And Forgery
Forgery and fraud of wills, transfer documents, and more cost real estate companies millions of dollars each year. If a buyer purchases a home whose documents have been forged, they may not have a legal claim to the property. Title insurance can help them to keep their investment secure.
Zoning And Boundary Issues
Some types of title insurance, such as enhanced policies, will include coverage for disputes such as boundaries and property lines. A buyer who purchases a home based on a certain element of the property, then later learns that the neighbor claims that element as theirs, may find themselves in a tough spot without title insurance to protect them.
How Affordable Is Title Insurance?
Title insurance is not a cumbersome investment. In fact, it is secured as a one-time payment rather than via monthly premiums like most insurance, making it highly affordable. Those who pay for title insurance just once are protected for as long as they live at the property, and the cost of the insurance itself scales according to the cost of the home. It should never become excessively pricey.
Trust The Professionals To Help You Craft A Comprehensive Title Insurance Policy
Whether you have questions about what title insurance covers or you are ready to secure a policy, trust reputable professionals to help. The experts at Mathis Title Company would be happy to walk you through how title insurance works. Reach out to schedule an appointment to ask questions or to get started on constructing a policy with the ideal protection for your situation.