What Does Title Insurance Cover and Why Do You Need It?
Understanding how your title insurance policy works and what it can protect you from is one of the most important aspects of selling or buying a home. Whether you’re trying to move to a new state, and just figuring out what the regulations revolving around title insurance are all about, or whether you’re selling a home you lived in for over 25 years, there are many important considerations to remember, regardless of where you plan to get your insurance premium from.
Title Insurance Basics: Who Is at Risk?
This is often a gray area for many buyers and sellers. Who is truly at risk if an eventual title search uncovers various title defects and disputes that have to be resolved and/or paid for? Typically, the seller has to pay title insurance, so that a title research company can evaluate the title history of the home and issue what is called a “clear title” – meaning that there are no liens, levies or unpaid taxes. Because the lender who offers up the mortgage is protected by lender’s insurance, and the seller is no longer the owner of the property, if there’s a dispute down the line, the worst-case scenario is that the buyer will be at risk to lose money or even to lose the entire property. As a buyer, you will therefore have to make sure that you have an adequate owner’s insurance policy before purchasing the property.
Standard Policies and Enhanced Insurance Cover
Good coverage is the most essential part of your title insurance policy. Depending on the type of policy you get, you might be able to obtain an extended and enhanced insurance cover, which will protect you from more than just the most commonly discovered title problems. While a standard policy might give you good cover for most title issues, such as improperly drafted documents, fraudulent activity, incomplete wills and some building code discrepancies, extended coverage plans offer post policy cover for forgery, encroachments and adverse possession, as well as zoning violations, expanded access and living trust coverage. Moreover, some insurance providers can also make sure that your coverage amount will keep increasing as time goes by.
Does Title Insurance Cover Outstanding Liens?
Serious problems can ensue from outstanding unpaid liens that may severely affect an innocent buyer. If past owners failed to pay their mortgage in full, or in the event that the closing agent used part of the money issued after the seller ordered a payoff to cover closing costs in bad economic times, the buyer can be left with the lender who issued the mortgage threatening foreclosure. In such cases, title insurance coverage is vital, as it can ensure that you can simply file a claim and have the insurer pay off the litigation and settlement costs, thus preventing foreclosure and making certain that you remain the rightful owner of the insured property.
Additional Coverage: Fraud, Forgery and Conflicting Wills
Regardless of costs and other aspects, you have to make sure that the policy will defend you in the event of a real life dispute. The most important requirement is to gain protection from past fraudulent activity. The property may have been owned by out-of-town owners, who later arrive to claim their property after it has been sold by a fraudulent real estate agent under false pretenses. Other examples include hidden title hazards and other cases involving attacks on the title.