The ownership rights to a property are held in the title. Therefore, when making a real estate purchase, it is crucial to ensure that the title to the property is free from encumbrances before finalizing the transaction. This is done through a title search.
Yet, regardless of the deep dive into public records, there are still risks — unknown title issues that can jeopardize your rights to your property.
Title insurance offers protection from these unforeseen circumstances. This article explores what it is and what it covers.
What is Title Insurance?
Title insurance examines the property records before they change hands in a real estate transaction. Defects like judgments, liens, outstanding taxes, current lawsuits, easements, and so forth can be attached to the property’s title. If these issues are not addressed prior to changing ownership, they will become the new owner’s dilemma.
In other words, a title search protects the buyer.
Title examiners will comb through all of the records concerning the property. They confirm that the seller has the right and authority to sell it and they make sure that nothing is clouding the title. Then, just in case something was missed or hidden, they offer the buyer a title insurance policy.
Types of Title Insurance
There are two main types of title insurance policies — an owner’s title policy and a lender’s title policy.
An owner’s title insurance policy is in place to protect the new owner. Should something arise anytime after the property has been transferred, this policy will cover the cost of clearing it up. This protection will remain in place for as long as you have an interest in your property.
As its name suggests, a lender’s title insurance policy protects the lender. They are taking a risk when providing you with a mortgage and having this policy in place protects them from any issues that may come from it. It is effective until the mortgage is satisfied.
Each of these policies can be purchased for one premium payment at closing.
What Does Title Insurance Cover?
Title insurance may sound great, but what does it cover?
Title insurance protects from financial loss. It takes one unknown heir to show up claiming rights to your property to put your rights in jeopardy. Time and money will have to be spent fighting the claim. And, if it turns into a legal battle, this can get incredibly costly.
The worst part? There is no guarantee you will win. You could lose your savings, or worse — your home.
Title insurance will cover the cost of this fight. Should a title issue come up, you’d simply file a claim. The legal team for your title insurance company would handle the rest.
- Liens
- Judgments
- Easements
- Encroachments
- Forgery
- Fraud
- Recording errors
- Outstanding fees
- Unknown heirs
- Missing wills
The list of potential title issues that can put your property rights at risk is long. Thankfully, title insurance can help you to have full use of your property for as long as you own it.
Title insurance is a very important part of every real estate transaction. If you have questions about how it works or if you still aren’t sure it is a necessary investment, talk to your title team. One premium payment at closing can protect you from catastrophic financial loss in the future — making title insurance an important asset to have as a homeowner.
Buchanan Settlement Services is a title company in Pennsylvania that offers title and settlement services for residential and commercial real estate transactions.