Title companies sell insurance to offer you protection. No one wants to purchase a home only to find that the sellers weren't even the actual owners and that you do not actually own the home. Neither would you want to purchase property and later have lenders come after you for repayment on the debt of a previous owner. With insurance from a title company, you are guaranteed not to be held liable for any of these types of problems—even if they pop up years later.
Here are 7 components of title insurance you need to understand before choosing a title company:
1. What is the cost? Not all title insurance costs the same. Prices are often regulated by the state; there are incidental costs as well. For instance, what are the fees for wiring money or courier services? Rather than just asking for the cost of insurance, you need to know the full transaction price. And if you are in an unregulated state, choosing a title company becomes even more financially significant. Prices differences can range from 10 to 20 percent. That can add up.
2. What does the title insurance cover? Most policies are fairly standard. Title insurance typically covers fraud, forgery, undisclosed heirs, omissions in deeds, mistakes in examining records, and spousal claims. The policy also covers legal fees in case there is a need to defend against claims of ownership. For additional costs, there is more coverage available. Ask your title company about extra coverage options that may apply to your situation.
3. Who pays for the title insurance? There are two policies: the buyer's and seller's. Sometimes the seller purchases both. Sometimes each party purchases their own policy, which is a one-time fee. It depends on the state and county.
4. Who did the previous title search? If a buyer uses the same title company that the seller did when he purchased the property, they will likely get the same results. The title company may refer to their previous search rather than doing a fresh title search. Therefore, it can be in a buyer's best interest to use an entirely different title company. The point of the insurance is to discover any discrepancies before the transaction goes through.
5. Should new construction get title insurance? If you are having a new home constructed, you may assume since no one has lived in the home before you that there is no need for title insurance. However, the title insurance protects the previously unimproved land as well. Lenders want to know the title is clear. Therefore, a title insurance will protect against a lien against the property because of a contractor who hasn't paid a subcontractor, or some other issue.
6. What is the difference between an Owner's policy and a Lender's policy? A Lender's policy only protects the lending institution, while an Owner's policy protects the owner of the property. Once an Owner's policy is issued, it is good for as long as the owner or their heirs own the property. However, if a home is refinanced, the new lender will probably require a new Lender's title insurance policy. They want to be sure there is no judgment against the property for unpaid taxes or that there are no liens against the property for unpaid remodeling costs.
7. How long has your title company been around? When you choose your title company, do some research. You want a title company with longevity in the real estate market. You need to know that if someone shows up on your doorstep 15 years from now claiming to own your property, your title insurance will still be valid.
Title insurance brings protection and peace of mind. Even if you have to cover the costs, it is well worth the money to know you are guarded against major financial loss.