Among the many decisions home buyers must make after a signed purchase agreement is whether to buy title insurance. Naturally, buyers want to know what exactly the owner’s title insurance policy will cover when assessing if the insurance is worth its cost.
Title insurance is something you hope never to use but are grateful when you do need it. Companies offer title insurance to protect you from any financial loss resulting from defects or ownership claims to your property. The title insurance company will help defend you in any lawsuits regarding your title or help compensate you in the case of a loss.
Title insurance typically covers losses due to:
1. Claims of ownership from other parties
This is one of the more common reasons why a title insurance claim is filed. Third-party claims of ownership result from various scenarios. Properties sold through probate can have a discovered heir to the estate file a claim. Properties sold due to a divorce can be challenged by ex-spouses who did not sign over the deed. Claims to rights of use can arise from unknown leases, contracts, or options. Someone could have an easement for use or access, like using your land to access their property.
2. Property liens
Liens attached to the property stay with the property and not the owner who incurred the judgment. This means a property could have an undiscovered lien that prior owners did not resolve. Most often, liens are for unpaid tax assessments. Liens also originate from special assessments or court judgments, HOA charges, or vendor labor and material from work before the start of ownership.
3. Fraud, errors, or omissions in previous deeds
Real estate transaction fraud can create problems even if the instance was from transactions before yours. Sometimes the issue is a simple filing error, but one that must be corrected. In other cases, the problem is the forgery of paperwork or a property deed. It does happen; there have been instances where people with similar names to the actual owner manage to sell the property.
4. Problems from before your ownership
It’s important to know that the title insurance will only cover problems stemming from before your ownership or for undiscovered encumbrances. That means if you have work done on the home and you do not pay, you are still responsible for the payment if the vendor places a lien on your property. On the other hand, if someone wants to pave a road across your backyard because they have an easement, but that was not noted on any of your property surveys or paperwork, that could be something the title insurance policy assists with.
What else title insurance covers
Your title insurance policy’s particulars, what is covered, and the policy limits depend on your insurer and individual policy. Do read the title insurance policy to make sure you understand what is covered and what is not.
Generally speaking, your title insurance policy will defend you in court if there is a claim against your property. It will also pay for any covered losses resulting from the ownership claims.
Title insurance is paid just one time when you purchase the property. Making a claim will not raise insurance rates for you; you’ve already paid the policy. The title insurance coverage will last for as long as you are the property owner, whether three years or thirty. It provides peace of mind that if your ownership claim is ever contested, someone with experience stands in your corner to defend you and compensate for your financial losses.
Want to know more? Independence Title is happy to answer any questions you have about title insurance, its use, coverage limits, and restrictions.