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For many people, having their own house is one of the biggest goals of their lives. The last thing that anybody would want is an unexpected problem regarding the ownership of the house after they’ve completed the purchase. This is where title insurance could help them out.
Title insurance is an insurance that protects lenders and homebuyers from financial loss that could be caused due to a problem or defect with the title of the property.
If a problem arises with a title when there is a transfer of property ownership, then the title insurance company will be responsible for paying the legal expenses that are mentioned in the policy. Unlike other insurance policies, which protect the insured against future problems, a title insurance policy protects the insured against the claims for past disputes.
A ‘title’ to a home refers to the legal rights that the owner has over the property. A clear title is very important for any real estate transaction. Any buyer who wants to buy a property intends to gain a clear and marketable title to the property and know the restrictions on the property. Sometimes, state laws and local restrictions can also cause problems with ownership.
If a property has any problems with the title, then it is the responsibility of the new owner to resolve these disputes. Some examples of common claims filed against a title are back taxes, easements and conflicting wills.
As the name states, the lender’s title insurance protects only the lender from any liability that could arise due to defects in the title.
The owner’s title insurance protects the homebuyer from any financial loss that could be caused due to problems with the title. This insurance is optional. It is often bought by the seller to protect the buyer.
Insurance companies conduct a search on every title to check if there are claims or debts of any kind against them before the tittles are issued. This is called a title search.
A title search is conducted when public records are examined to determine and confirm a property’s legal ownership. In simple words, by confirming that a property has a clear title, the title company is ensuring that the person selling the property is the rightful owner and has the right to sell it.
After the title company has confirmed a clear title or identified issues, it starts the underwriting process. In this, they assess the existing issues and try to find any potential undiscovered ones.
The title company offers a quote for a policy on the basis of those risks.
If a title has too many defects or problems, the title company may not offer a policy quotation. An example of something that can make a title ‘dirty’ or ‘problematic’ is unresolved building code violations.
After the property purchase agreement is completed, a closing agent initiates the insurance process. Usually, a lender’s policy and an owner’s policy are required together to guarantee that everyone is properly protected.
A basic title insurance policy will cover the following:
Imagine that a homebuyer finds their dream house and after closing the deal finds out that there are unpaid property taxes from the previous owner. If the buyer doesn’t have title insurance, then they will have to bear the financial burden of the claim for back taxes.
They will either have to pay the outstanding property taxes or risk losing the home to the taxing authority. And if in this same scenario, the buyer has title insurance, the coverage will protect the buyer for as long as they own the property.
Title insurance protects the investments made in real estate and provides cover against financial loss arising from title defects. As it safeguards all possible title disputes that could arise, it is highly beneficial to consumers as well as lenders.
Some benefits of title insurance are:
As every insurance has its own disclaimers, so does title insurance. It is very important to go through the policy carefully and understand the coverage provided before buying title insurance.
It is also important to understand the process of claiming the policy, renewal of the policy and the types of evidence required to prove the loss.