Even with changing times, owning a home continues to be the primary goal of many Americans. However, the intricacies involved in the home buying process along with the effort to obtain a home loan can be an extremely stressful experience. It can be even more challenging for first-time home buyers. It can get even difficult for those who are not aware of the lesser-known aspects of the home buying process.
Having a working knowledge of unfamiliar terms such as title insurance, which has a vital role to play in speeding up the closing process, is always useful. Discussed below are some of the points that signify of essentiality of Title insurance in the process of home buying. The basic info can go a long way in improving the homebuyers’ knowledge on Title insurance.
What is Title Insurance?
Like any insurance, Title insurance is a worthy investment and can be a significant factor when it comes to maintaining the legal rights of a real estate property. It protects the new owners of the estate from any kind of loss or damage that could arise from the unpaid liens or similar defects in the property’s title. However, it is a bit different from the other insurances as the purchasers are not required to pay monthly premiums. Being a one-off fee, the buyers have to pay it at the time of closing the mortgage deal. Also, the rates can vary for each deal as it depends on the location and value of the real estate.
Title insurance may not be mandatory, but it gives the homebuyers, and even the lenders, an opportunity to secure themselves against possible title defects and the conflicts that can arise out of them. So, it’ usually considered a sensible investment.
Issues with a title can arise due to various reasons, and the most prominent is the outstanding liens, which usually remain unpaid by the past owners. Some of the liens could include tax liens, mortgage liens or child support liens. Other defects could arise due to disparities such as abstracts of judgment, or bankruptcies filed by the past owners of the property.
Having a lien against a property means the owner owes a debt to a party, which has the right to take possession until the debt is repaid. The party could either be a person, company, or a government body. When such a property is sold away by the owners without clearing the liens, the new buyer will automatically become liable to pay for those liens. Also, the buyer would be held responsible for clearing even the defects on the property. However, the title insurance can protect the new owners from such descending liabilities by taking care of them at the time of closing.
A ‘closing’ is the final step in the home buying process and occurs when the keys to the house are given away to the buyer, while the seller receives the payment. However, for the transaction to be completed, both parties have to complete and sign all of the closing documents, which are then verified and approved by the title and lending companies.
The company providing the Title service conducts a title search, before issuing title insurance, which is to determine if there are any latent defects to the title. The search performs a check on ‘lines of credit’ acquired against the property, along with unpaid taxes, negative judgments, demands or special assessments related to it.
Apart from these details, the title search would also examine any legal bindings against the property such as leases, easements, or other restrictions, which might turn into an issue for the new owners. In case the search finds any such issues with the property lines, the title company can even order a survey, which is more in-depth scrutiny of all the legal documents of the estate.
Upon completion of the title search, the title company produces a report of the findings. If the report finds any concerns, it could potentially stall the sale of the property, as they could trigger fraudulent ownership claims in the future. Only after the discrepancies are resolved, the company issues a title opinion letter, which is a legal document indicating the validity of the title.
However, even after a thorough title search, it is practically impossible to make sure if the title is clear of all hidden issues. There could still be some forgotten wills, undisclosed heirs, or unknown land mineral rights. Additionally, there could also be invalid court proceedings against the estate and which could lead to defective deeds and illegal settlements.
Hence, the Title insurance eventually becomes essential as it will protect the new owners from these defects, regardless of it being very old or remote. The buyer also gets protection from fraudulent ownership claims, and any unforeseen issues come up during homeownership.
Thus, Title insurance can be a sensible investment as it ensures the title as reported and recorded. Moreover, the relative cost of a title-insurance could be quite low as compared to the value of what the new buyers could stand to lose in case there is a dispute on the title in the future.