A title insurance policy is typically acquired during the due diligence and closing stages of a real estate sale. This insurance protects the lender and the borrower from issues (and costs) associated with the home’s title. In this review, we take a closer look at title insurance and discuss when a policy is required to ensure the transfer of a title.
What is Title Insurance?
Title insurance protects the policyholder from problems with the title of a piece of property. It also works to ensure issues with the title are detected and resolved early, typically before a real estate sale is complete and the title is transferred. There are two types of title insurance policies: a lender’s policy and an owner’s policy.
A lender’s title insurance policy is required to transfer a title in order to receive financing for the real estate purchase. Although the lender’s policy protects the lender, the buyer is the one who pays for the policy but does not receive protection. An owner’s policy, which provides protection to the owner, is highly recommended but not required.
How Does Title Insurance Work?
Title insurance providers seek to avoid costly concerns associated with the title before they arise. They accomplish this by conducting a thorough title search.
Specifically, they check for any liens, encroachments, inaccurate or incomplete legal descriptions, or defects. This typically involves a public records search, legal description review and a check for liens against the property.
Public Records Search
The first step is usually to have an abstractor review public records. They want to ensure that all conveyances of the real estate property have been properly settled. Many issues with a home’s title are often discovered during this stage.
Review Legal Descriptions
The abstractor may also review all legal documents associated with the conveyance of the property. If there are any improper, inaccurate or incomplete legal descriptions, it could raise a red flag that requires further examination.
Check for Liens on The Property
A lien against the property can prevent the transfer of a title until the attached debt is settled. The abstractor will use all methods available to them to ensure liens on the property associated with previous owners have been settled.
Does The Buyer Need Title Insurance for a Title Transfer?
An owner’s policy is not required for the transfer of a title during a real estate transaction. However, it is strongly recommended to mitigate the financial risk for the buyer.
Keep in mind, although a lender’s policy ends when the loan has been removed, an owner’s policy is valid for the entire time they own the real estate property. This means if any issues or disputes arise with the property title in the future, the policy is still in effect.
Does The Lender Need Title Insurance for a Title Transfer?
A lender’s title insurance policy is required for the transfer of a title during a real estate transaction. As mentioned, the buyer (or “borrower”) is still the one who pays for a lender’s policy.
Receiving financing for a property during a sale is often contingent upon the borrower purchasing title insurance; however, if the purchaser pays in full and does not use a lender, then a lender’s policy is not necessary.
Is Title Insurance Required if I Transfer The Title to a Friend or Family Member?
Title insurance is strongly recommended any time a title changes hands, whether it occurs in the form of a real estate sale or the title is transferred for non-financial reasons.
Primarily, when transferring a title to a friend or family member, title insurance helps protect the property’s value as any issues with the title that are unresolved must be cleared before the sale of the property. Although it may be possible to transfer a title to a friend or family member without title insurance, it comes at a greater financial risk.
What Types of Problems Will Title Insurance Protect Against?
There are many possible issues that could arise during the transfer of a real estate title and title insurance protects against most of them. Most notably, a policy can help protect the policyholder in these scenarios:
- The seller did not legally own the property
- The seller owns the property, but they have conveyed the property to someone else
- There are unpaid mortgage payments that give creditors the right to seize the property
- There are unpaid property taxes that give taxing authorities a right to foreclose
- There are gaps in the property’s chain of title that must be added before the title can be transferred
Contact Mathis Title Company to Get Started With Title Insurance
Mathis Title Company offers title insurance and a variety of title services, to ensure you are protected throughout a title transfer (and after). For more information, or to get started with personalizing your policy, contact Mathis Title Company or schedule an appointment online.