Title insurance protects property buyers and their lenders against problems that may pop up with the title after the home sale is complete. While the title search will discover obvious issues, there is always a risk of hidden problems that can pop up after the closing. These can cause expensive financial problems or lead to loss of ownership of your home.
Title insurance falls into two basic categories: owners and lenders coverage. Your lender is going to require a lender’s policy, but this coverage is only for the lender. If you want to add protection for yourself, you will want to consider an owner’s policy. These two are not the same, so here is a closer look at how they differ.
What Is a Lender’s Title Insurance Policy?
Lender’s title insurance policies protect the lender’s interests in the property and the title. If a lien or other problem is discovered in the title search or after the purchase, the lender’s policy will protect the lender from any financial loss. When the loan is paid off, the policy disappears.
Your lender will require you to buy a lender’s title insurance policy as part of your closing costs. However, even though this policy is mandatory, it provides no coverage for you as the owner. It only protects the lender if title problems pop up.
What Is an Owner’s Title Insurance Policy?
The owner’s title insurance policy protects the home’s owner and are issued in the amount of the purchase, and last as long as the owner owns the property. If a title problem arises after the home’s purchase that was not found during the title search, the insurance coverage will protect the home’s owner and pay for legal defines if required. Some of the types of hidden problems that can show up after a home’s purchase include:
- Learning that another party has an ownership claim to the property
- Improper or incorrect signatures
- Forgery or fraud on the title document
- Flawed records or record keeping
- Liens or encumbrances against the property
- Undisclosed heirs
- Errors or omissions in the deed
Any of these problems may create a significant legal headache for a homeowner. Thus, purchasing an owner’s title insurance policy protects you from the potential loss of your home if one of these problems occurs.
To purchase owner’s title insurance coverage, you will pay a one-time fee at closing. Once purchased, the coverage lasts as long as you own the home. It also extends to your heirs as long as you pass the house down through an estate planning trust or your will. It ends if you choose to sell the home.
Isn’t the Title Examination Sufficient?
Your home’s title search or examination will find most problems, but hidden issues can always pop up years down the road. If an heir comes forward and claims your property, and you don’t have title insurance, you will face a costly legal battle to determine if you can keep your home. For a one-time expense at closing, you can purchase protection that lasts as long as you own your home; thus, making owner’s title insurance a worthwhile investment.
If you’re considering buying a home, consider adding the title insurance policy to your closing process. You will get peace of mind and avoid an expensive, frustrating headache should hidden title problems pop up at a later date.