When you purchase a home, you are really purchasing the title to the property, which is the right to occupy the space. That title could be challenged based upon past rights and claims asserted by others. Such claims can interfere with your purchase of the property or cause you to lose money.
Since a home is usually the largest purchase we make, it is wise to protect against loss of value due to fraud, forged signatures on deed, unknown property heirs, liens, and documentation errors. If you were uninsured and your title was challenged, you could spend a significant amount of money defending yourself or could lose your home. Your mortgage lender will require a loan policy of title insurance to protect their interest in the value of your property, and a homeowner should purchase an owner’s policy for the same reason.
For a one-time premium, generally paid at closing, an owner’s title insurance policy remains in effect as long as you, or your heirs, retain an interest in the property.
A title search is a close examination of all public records that involve title to the real estate you are purchasing occurs. The person conducting the search looks at past deeds, wills and trusts to assure that the title has passed correctly to each new owner. The examiner tries to verify that all prior mortgages, judgments and other liens have been paid in full. If a problem, called a defect or cloud on the title, is found, it should be corrected prior to closing. However, even an expert title examiner can miss a defect that might cause problems for you later.
Five things to understand about title insurance
- Title insurance protects you from fraudulent claims against the ownership of your property and from mistakes that could have been made in earlier sales of the property such as the misspelling of a person's name or an inaccurate description of the property.
- The cost for title insurance is usually based on the price of the property and is usually paid as a one-time fee.
- The buyer usually pays the cost of the title insurance for the property.
- Lender title insurance policies protect the interest of the lender and are usually required by the lender at the time of the sale. Buyer policies are also available and are recommended to protect the buyer's interest.
- Discounts on premiums may be available if the home has been bought within only a few years since not much work is required to check the title. Ask the title company if this discount is available for you purchase.
Portions of this article reprinted from REALTOR® Magazine Online by permission of the National Association of REALTORS®. Copyright 2008. All rights reserved.