Jim and Carol C. fell in love with their dream retirement home in Boca Raton, and everything about the transaction went smoothly. Contract negotiations were straightforward, the mortgage was approved, and no obvious title problems came to light. They celebrated their purchase with a toast on their new back deck overlooking the canal and settled in, anticipating many happy years ahead.
One day, they received a visitor that changed that. This visitor was the one-fifth owner of the estate to the person that sold them the property. To pay this person the one-fifth of the property value would cost thousands of dollars, a significant chunk of their retirement savings.
Luckily for Jim and Carol, their owner’s title insurance policy helped cover the expenses and worked to rectify the ownership situation so they would be free to own the home they purchased.
What is a title insurance policy?
When you buy a house, you receive a title, or deed, that certifies your ownership. Every time a property is bought, sold, or financed, it is recorded in public archives with the county. It creates a history showing a chain of ownership.
A title insurance policy is indemnity insurance protecting policyholders from title defects. While title defects are not common, they do happen. Tackling them usually costs thousands of dollars and potentially risks your loss of ownership to the property.
What does a title insurance policy cover?
A basic title insurance policy covers holders against:
- Ownership claims from a third party
- Document forgery or fraud
- Record errors
- Encumbrances or judgments against a property
- Restrictive covenants
Common title claims deal with back taxes, conflicting wills, and property liens.
It’s important to understand there are two types of title insurance policies:
- A lender’s title insurance policy only protects a mortgage lender and their financial investment in the property. Mortgage lenders will require a title insurance policy to cover the amount of the loan.
- An owner’s title insurance policy protects the homeowners from claims of ownership and financial loss related to title errors. This policy is not required, but it is recommended.
How a title insurance policy is issued
When a title company is contracted as part of a real estate transaction, it will run a title search through public and private databases to establish a clear ownership history. The title search seeks out any property liens, back taxes, or restrictive covenants that may impact your property use. The title company can assist in resolving any discovered problems.
Once the title search has been cleared, the title agency is authorized to issue the title policy through their national underwriter.
Title professionals are skilled at their jobs, but they still may not find all associated problems with a property. Filing errors can be challenging to identify, as can forgery or document fraud. This is where the purchase of a title insurance policy is very important.
Buying a title insurance policy in Florida
Homeowners have the right to shop around for title insurance policies in Florida. The state sets title insurance premiums, at $5.75 per $1000 for transactions under $100k, or $5.00 per $1000 for purchases over $100k.
Why buy a title insurance policy
Unless you are a cash buyer, a mortgage lender will require the homeowner to purchase a policy. Otherwise, your title insurance policy provides additional peace-of-mind regarding your purchase and property use. The premium is paid one time and lasts for as long as you own the home.