Who Needs Title Insurance?
When you’re in the market for a new home, you may be curious about the age of the property’s roof and windows, or you might want to know when you’ll need to replace the furnace. The last thing on your mind is likely any problems that would affect your legal right to own the home — but that’s exactly why title insurance is part of the homebuying process.
The term “title” simply refers to ownership of a home or other real estate. Title insurance is a form of indemnity insurance that protects lenders and homebuyers from financial loss sustained from defects in a property’s title. The title must be “clear” in order to transfer ownership, meaning that no one else can have any sort of claim to the property.
Title insurance can protect you, as well as the lender, in the case of someone attempting to make this kind of claim. Before you close on your home, your title company will perform a title search, or an examination of public records to determine and confirm the property’s legal ownership and look for any possible claims or other title problems. Once the search is completed and reviewed the policy will be issued at closing. Without title insurance, you could be faced with significant risk if a title defect is found later.
What Does Title Insurance Cover?
A title insurance policy covers numerous risks, such as flawed records, incorrect ownership, and falsified documents. It’s important to remember that, unlike traditional homeowner’s insurance which protects against future events, title insurance protects against claims for past occurrences.
Some of the potential defects covered by an owner’s title insurance policy include:
- Conflicting ownership claims, such as will complications and similar disputes
- Outstanding lawsuits, liens, and other encumbrances against the property
- Erroneous or flawed public records, including honest mistakes like incorrect signatures
- Outright fraud and/or forgery
- Unrecorded special taxes, and assessments of public improvements
Let’s talk about some scenarios in which title insurance can protect you and your investment. Say you just purchased your house from a seller who inherited the property. Later, you find out that the seller has an undisclosed brother who also owned half of the property, as designated in the will. Title insurance would help you offset the legal fees involved in challenging his claims.
Or suppose the seller of a house you bought had an overdue bill on a previous home addition, and there’s a lien on the property that predates your closing and mortgage. Without title insurance, you, as the current homeowner, would be held liable to pay off the work that was done
Even with new construction, title insurance can give you an added layer of protection to help you combat unknown liabilities.
Who Needs Title Insurance?
By now, you may be wondering who, exactly, needs to purchase title insurance. Mortgage lenders require title insurance in nearly all refinance and purchase transactions. In fact, they’ll place a lien on your property after closing, giving them the right to foreclose if you default on the loan, it’s called the mortgage document and is the security for the monies they lent. That way, they can ensure that they are in first lien position and no one else has a claim on the property in front of them.
In addition to the lender’s title insurance requirement, there is an owner’s policy that covers the homeowner which is customarily purchased for the buyer by the seller. Having this type of coverage is key to your peace of mind.
To review, there are two kinds of title insurance policies that can be issued at closing:
- Lender’s policy: Protects the mortgage lender for as long as they have a lien on the property (typically, until you pay off the loan).
- Owner’s policy: Protects you, as the homeowner, for as long as you own the property.
The Lender’s premiums are based on the loan amount, while the owner’s premiums are based on the purchase price. One premium for each policy is paid at closing, providing coverage for the entire term of the policy.
Vanguard Can Help You Navigate the Title Insurance Process
Still have questions about title insurance? Vanguard Title Co. has successfully closed thousands of real estate transactions throughout the state of Michigan since 1987, and we’re ready to help you, too. Our team of knowledgeable title and closing specialists has nearly 30 years of experience in the areas of real estate, title insurance, mortgage, and closings.
At Vanguard, we know that buying a home is one of the most important and complex decisions you’ll ever make. We explain everything at the start of the closing process to minimize any confusion and prevent any surprises along the way. From beginning to end, we keep all parties involved in each transaction informed and updated. And we’re committed to making sure that your overall experience is a positive one.