What Is Title Insurance and Why Should You Get It After Buying Your Dream Home?
Should you consider getting title insurance? This is a question that most home buyers are faced with as soon as they manage to find and purchase a new house, apartment or any form of real estate whatsoever. While many homeowners might not believe that title insurance is necessary, there are concerns that could come up. Obtaining a good coverage option for title insurance will be a great precaution when it comes to defending your legal rights to own the house you bought.
Understanding Title Insurance
Title insurance is a less common type of insurance that is linked to the title of your home and the limitations or legal issues that may be imposed on it. As opposed to most other types of purchases, when you buy a home, you’re not actually handed the property. Instead, you are given a title that pronounces you the rightful owner, and provides you with some basic rights – such as the ability to resell your home or build new rooms. Title insurance hands you the security that those rights will be upheld regardless of any past dealings that could affect you. For example, it can protect you against fraudulent actions and unpaid taxes linked to any previous owners or tenants who have occupied the home, and it can prevent previous titleholders that were thought to have voided their claim from coming back to demand their share of the property.
Title Problems That Could Come Up
Title insurance won’t protect you from everything. Before handing you the policy, the insurance company will do a title search to find out whether any limitations of use are placed on the title. Deeds, wills, trusts and unpaid mortgages are typically found through title searches and added as exceptions to your coverage. However, title insurance will protect you from the dozens of potential title problems that aren’t found immediately. These can include, and are not limited to, forged mortgages and other fraudulent acts committed by previous owners, fabricated power of attorney, execution of old deeds by minors and other people who aren’t competent, and much more.
How Does Title Insurance Work?
Unlike most types of insurance policies, title insurance works somewhat “in reverse.” It requires you to provide a one-time payment that insures you against problems that have already occurred, such as existing, lost liens, fraudulent documents and illegal actions taken by past property owners. It will not protect you, for example, against your own unpaid taxes or any improperly prepared documents as part of a future real estate deal. If the title search doesn’t reveal any extraordinary title problems or risks, your insurer will likely give you a cheaper offer, so you don’t have to worry about expensive coverage.
Insurance Coverage and Filing Claims
The best title insurance will give you adequate coverage that accounts for the consequences of past issues and illegalities. Depending on whether you get an owner’s policy or a lender’s policy, the defense your title insurance has to offer will differ over time. With a lender’s policy, your exposure will increase as you pay off your mortgage and gain equity. In contrast, an owner’s policy will not have that drawback. When it comes to protecting your interests in the event of a title claim, it is essential to keep in mind all the limitations and exceptions of your insurance coverage, and in some cases, you could also consider buying extended coverage for some of those exceptions.