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Real Estate Article Series
Do You Need Title Insurance? What is it?
Buying a home is a significant investment.
A title insurance policy helps you protect that investment
against potential losses that may occur after your house deal
closes and you discover that someone else has an ownership
claim to the property.
It may seem unlikely that such a scenario could play out,
but it is a surprisingly common occurrence – frequent enough
to make purchasing a title insurance policy a good idea to
safeguard your investment.
When
you buy a home, your lawyer or legal representative will
conduct a title search (also called a title examination) to
determine ownership of the property in question. A title search
involves collecting and examining, in detail, all of the public
records that involve the title to the property you are purchasing.
The search may include past deeds, wills, trusts or other liens
against the property to ensure that it has passed properly
from owner to owner. The person conducting the search will
also attempt to confirm that all previous mortgages and judgements
involving the property have been fully paid.
Most
times, your title search will come back clear. On occasion,
however, a ‘cloud’ or ‘defect’ such as a missing signature
will be detected, and while the defect is likely the result
of an administrative error, it should be cleared before your
deal is completed. A thorough title search should also reveal
nuisance issues such as easements that may affect your interest
in purchasing the property. Easements or right of ways may
not present an immediate problem, but could adversely affect
the property in the future.
Title
searches are helpful in identifying any potential title-related
issues relating to your property, but mistakes happen (in the
public records themselves, as opposed to just mistakes on the
part of your examiner), and you may find yourself involved
in a legal battle in the future if a title conflict does come
to light after the close of your house deal. That’s where title
insurance comes into play; if you have a title insurance policy,
your legal fees will be paid if you are forced to go to court,
and if you lose the property as a result of a title dispute,
you will be reimbursed up to the limit of your policy.
Similar to other types of insurance, title
insurance policies do have certain exclusions, so it is important to clarify what
your policy covers and what it does not. Some title insurance
policies, for example, do not cover, or have limited coverage
of problems related to easements, liens or mineral rights.
Shop around if you want greater coverage and are willing to
pay extra for it. No matter which policy you purchase, defects
that occurred after you bought the property are not covered
by title insurance.
Now
that you have a better idea of what title insurance is and
how it is used, do you need it?
Maybe.
If
you pay cash for your property and do not require a mortgage,
you may choose
whether or not you want to purchase title insurance for
your own protection. If, however, you are obtaining
a mortgage to finance your house purchase your lender will likely
insist
on title insurance coverage to protect its own interests
in
the event of a title dispute. Your lender may also stipulate
additional coverage to guard your portion of the home’s
value. Policies vary by insurance carrier, but generally,
a lender’s
policy is for the amount of the mortgage and is payable
to the lender in the event of a lost dispute while an owner’s
policy covers the full cost of the property plus legal
fees.
An issue to consider when purchasing title insurance is
whether your policy includes inflation riders that will increase
the amount of your coverage as your property value rises.
You may
pay a premium for this service. Home buyers are usually responsible for the cost of title
insurance, but may defray the charge by including title coverage
as a condition of sale or by having the seller’s policy adjusted
and transferred to the buyer’s name. Additionally, some states
may require the seller to pay some or all of the title insurance
costs, which are typically paid in full as part of your property’s
closing costs. Ask your legal representative to outline your
responsibilities and the seller’s responsibilities. # # # # #
SolveYourProblem.com : 2007
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