Title insurance is a type of insurance coverage that tackles issues relating to past title mistakes or current fraudulent behavior that may arise when buying a home or refinancing one. Typically, title problems are not known when you try to buy a house and are only discovered later, when you are on the hook for whatever problem has arisen.
Therefore, the main benefit of purchasing title insurance is the protection it provides you, the buyer, from unexpected claims or flaws related to the property being purchased. Without title insurance, buyers place themselves at risk of a multitude of financial repercussions or even losing ownership of the home entirely including any equity garnered until that point.
Lenders will usually require that you purchase a policy that protects their interest which is usually listed as a lender’s policy on your settlement documents. You should have a policy that protects your interests as well, which is known as an owner’s policy. Here are some of the main risks you may face without this coverage.
A lien is “a right to assert security interest in a property provided by the owner of the property to the creditor.” In other words, a lien is usually used as a guarantee for monetary obligations such as property taxes. If a previous property owner does not pay their property taxes, the current owner is responsible for paying back the lien that results.
If you purchase a home and the seller is (intentionally or unintentionally) hiding a lien related to the property, that financial debt becomes yours, as the new owner, even though it was not your debt originally. Essentially, if the liens aren’t cleared, you may need to pay that debt in order to clean the property’s title.
There are many kinds of liens, which can include:
- State and federal unpaid taxes
- Community association fees
- Contractor-performed work
- Divorce decrees
- Child support
Having title insurance can shield you from inheriting already existing debt. The title insurance company will cover title-related problems such as debt up to the maximum coverage, and some may even be able to help you with services such as historical searches to uncover liens before you commit to buy.
Losing the Property or House
As a result of ever advancing digital technology, crimes of home title fraud have been on the rise in recent years. Fake real estate agencies can use technology to falsify identification and create forgeries, falsifying records and claims on properties.
This kind of fraud can blindside new and existing homeowners alike; sometimes, the property can even be sold without the current owners even knowing. Then the fraudster takes off with the proceeds from the sale and the current “new” homeowners are left with a legal nightmare.
Title insurance coverage can protect you from losing your property, either to new buyers you didn’t consent to or from legal fees involved in the process of contesting the fraud.
The purchase of property is a very well documented process, but an error along the way can cause long-term consequences. Simple issues such as a mistyped answer on a form or even your escrow being routed to the wrong place may be covered under title insurance depending on the type of coverage you select.
Imagine that you have lived in your new home for a few years, and then suddenly, you receive a notification that you are required to vacate the premises because the actual “owner” of the property has claimed it. How can this happen?
In reality, this is quite common. If someone leaves the home to a beneficiary in a will, for example, and that beneficiary cannot be found, the home may be placed on the market. If the beneficiary shows up years later, they may still have a valid claim to that property, even if you have purchased it and live there.
In cases where the claimant to the property has a right, there is a real possibility that you may need to buy the share of the house in addition to covering the other financial losses related to a lawsuit.
Having title insurance can cover several issues in this situation. Depending on the policy you have, the title insurance company can cover a range of legal fees, and they may even defend you legally in court.
Trust the Professionals to Help You Choose the Right Coverage
Title insurance is a critical element of your new home ownership journey. Be sure to speak with the experts at Mathis Title Company to discover what types of coverage best suit your situation. For confidence in your new home purchase, contact Mathis Title Company to schedule a consultation to get started today.