Most responsible and risk-averse new home buyers will typically purchase homeowners insurance in order to protect their property from future damages due to floods, fires and other types of potential disasters. However, many homeowners may not know whether they need insurance to protect their newly constructed home against claims for past events. Title insurance protects the homeowner from financial loss tied to the ownership of a property. Lenders typically require a policy for providing insurance, while an owner’s policy is optional. Both represent an upfront, one-time payment and not a regular, monthly fee added to your mortgage. This type of indemnity insurance is useful for cases where somebody sues and says he/she has a claim against the home from before the new homeowner purchased the property. If you are wondering whether you need owner’s title insurance for new construction, here is what you should know about this type of protection.
What Is Owner’s Title Insurance?
Whenever someone buys a new home, they typically receive a deed or another similar document that proves the previous owner sold their legal ownership of the property — or “title” — to the buyer. Title insurance, which is typically paid for by the seller, protects home buyers and mortgage lenders against any issues or defects a title may have whenever a transfer of property ownership takes place.
Should an individual, couple or family buy a home and anybody later sues them for a claim against the property from before the former purchased it, title insurance can protect the new homeowner(s). Most claims relate to a previous owner’s lack of tax payments or to contractors who say they did not receive any pay for construction work performed on the home before the new owner bought it. These claims can take the form of a lien or levy from a lender or the government.
Most basic owner’s title insurance policies usually cover occurrences like:
- Fraud and forgery on title documents, as well as incorrect signatures and falsified records
- Flawed documents or record-keeping (clerical or filing errors)
- Third-party ownership of the property
- Encumbrances against home like liens or lawsuits
- Unrecorded easements (legal right to use another’s land for a specific, limited purpose)
- Restrictive covenants (agreements that limit the use of property and can sometimes include terms that lower value or enjoyment of land)
Other owner’s policies can shield an individual or group against contingencies like spousal claims and undisclosed heirs. Additional coverage can also often increase the cost of title insurance. For instance, a restriction endorsement could protect an individual or group if the construction of their new home accidentally violates the limits of their subdivision, according to Frank Pellegrini, CEO of Illinois-based Prairie Title.
Benefits For New Construction
If you’re having a new home or other types of property constructed, title insurance can help you find any possible existing liens on said land. A lien is a form of security interest that helps ensure payment of a debt or fulfillment of any other similar responsibility. Title insurance can also allow you to assess the property to establish boundaries on the land you are buying and having constructed. This form of protection also helps ensure that every supplier and subcontractor has been properly paid by the person or company you hire for the construction project.
Among the most common title issues that can often be found until after the closing of the transfer of property are undiscovered wills, boundary and survey disputes, and illegal deeds. False impersonation of the previous owner and other types of forgeries and fabrications could also threaten your ownership of a property. According to ValuePenguin.com, the average cost of title insurance in 2019 is $544 for a lender’s policy and $830 for an owner’s policy, so approximately $1,374 in total. Forbes cited similar figures in 2018.
Seeking Title Insurance For A New Home Construction Project
If you just purchased a home and are looking for owner’s title insurance for said property’s construction, look no further than Mathis Title Company in Fairfax, Virginia. Owner and operator Robin Mathis is a hands-on attorney who has more than 30 years of experience in real estate settlement services. Mathis has performed closings on both small commercial and residential properties and estates, and has experience with both the buyer and seller sides of the process.
Throughout the transfer of any property, Mathis Title Company will hold any funds that are transferred in an escrow account before the transfer of the home title and subsequent closing. Once the title order is approved, Mathis’s agents will ensure a clean title transfer and the new homeowner will be provided with a preliminary report to evaluate and approve. Mathis will then task an underwriting company to issue an insurance policy.