So, you are getting close to closing on your home, and you have received a disclosure with a long list of costs and fees. The closing costs—the money you will have to pay in order to close—is giving you sticker shock. There are fees, and insurances and taxes and professional fees and now you are scanning the list to see where you can cut some corners.
You come to a large item on your closing disclosure called title insurance, and you notice that it looks like there are two insurances for which you are paying – lenders’ and owners’ policies. What is the difference? Why do you need these? What are they protecting you from?
Lenders’ and Owners’ Title Insurance
As the name implies, lenders’ title insurance protects your lender. Assuming you are taking out a loan, your lender will require you to purchase this policy. This protects the lender from title defects (more on that later), up to the amount the lender is loaning you. When you pay off the loan, there is no more coverage.
An owner’s policy is separate, and it insures you as the owner. Although the one-time fee paid at closing may be steep, it covers you for as long as you own the property, and for as much as the total purchase price.
So, let us say that you purchase a home for $200K and borrow $150K. After 10 years, your loan is down to $100K. If there were a title problem, the lender’s policy would insure that $100K only. You would need the owner’s policy to insure the remaining 100K.
Problems that Title Insurance Protects Against
When you buy property, a title search is done to make sure that the person selling the property actually legally owns it, so that he or she can convey good title to you. Property ownership goes back many years, and records may not have been kept very accurately.
So, let us assume your house was sold from A to B to C to D and then to you. You do not ever know 100% whether the chain of title—that is, from A to you—is unbroken and error free. Problems could have arisen in any transaction (A to B, B to C, C to D, etc). If there is some irregularity or problem in any transfer of the property, the chain is broken and it could affect your legal ownership.
What if, in the process of conveying the property, a deed was not properly executed? What if a name was forged on a document related to your property years ago? What if someone who owned your property years ago died, and the property was sold but there were heirs who should have legally inherited the property?
These and many other situations could lead to a title claim, where you could lose legal ownership of your property. Even the best title search ca not find many of the possible problems that could arise, making title insurance vital to protect your investment.
A real estate transaction is a complex process involving a lot of money. Whether you are a buyer or seller, contact Agnes Rybar LLC, to make sure you have representation in any real estate transaction.
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