How many different insurances are there with home purchases... home insurance, title insurance, mortgage insurance? In my last article, I shared information about Mortgage Insurance, which is in place to protect the lender. In this article, we will talk about Title Insurance, which is in place to protect the buyer.
Owner's title insurance is one of those items often misunderstood by homebuyers at closing, yet its value is tremendous. When a property is financed, bought or sold, a record of that transaction is generally filed in public archives. Likewise, records of other events that may affect the ownership of a property, like liens or levies, are also archived.
Owner's title insurance is a policy that protects homebuyer's property rights. For the same reason the bank requires a lender's insurance policy, the homebuyer obtains owner's title insurance to protect their legal claims to the property.
It may be hard to understand what the home owner is being protected against. One could be if a home owner purchased a new home from a builder and the builder failed to pay the roofer. In order to seek payment, the roofer may file a lien against the property. Without owner's title insurance, the homeowner would be responsible for paying this existing debt. This is just one example of how owner's title insurance protects homebuyers from various significant risks.
Even the most skilled title professionals may not find all problems associated with a property, though. Some risks, such as title issues due to filing errors, forgeries, or undisclosed heirs, are difficult to identify. So after the title company finishes its searching, it also provides a title insurance policy that will help protect you from a variety of issues that might be uncovered later.
NOTE: If you take out a mortgage loan when you buy your property, your lender will require a loan policy of title insurance. This protects the lender's interest in your property until your loan is paid off or refinanced. On the other hand, an owner's policy of title insurance insures your ownership rights to the property. Even though you'll pay for this policy only once, your coverage will last as long as you own your home.
The good news is that owner's title insurance protects homebuyers legally and financially as long as they and their heirs own the home. For a one-time fee, homebuyers can rest assured, know they are protected against existing debts or claims against their property.