As you move through the home-buying process, you are going to encounter a lot of new terms. One of the most common is title insurance.
It is easy to push something aside that we don’t understand, but you may one day realize you made a costly mistake. Take the time to educate yourself on what title insurance is and what it can do for you.
What is Title Insurance?
Title insurance offers protection against any monetary loss or hefty legal expenses that result from a defect in title. And, purchasing a title insurance policy at closing can protect you as the new owner of the property.
The insurances you are used to, such as health insurance or car insurance, protect you from things that may happen in the future - say, you get into a car accident or you need gallbladder surgery. Title insurance is different as it protects you from things that happened in the past. For instance, if a missing heir of a previous owner appears demanding rights to the property. There are many different defects just like this one that a title insurance policy protects you from.
What are Defects in Title
We’ve mentioned that title insurance protects you from defects in title, but - what are defects in title?
The title to a property is your right to ownership. It is not a tangible thing, such as a deed. When you purchase a piece of property, you take the title to the property and a deed is recorded stating this. Before you take the title though, a title search is done to make sure that there are no defects. These include:
Easements
Encroachments
Unknown heirs
Undiscovered will
Fraud or forgery
Judgments
Tax liens, mechanic liens, or other liens
Recording errors
A thorough title search is meant to catch all of these things and either give an opportunity for the defect to be cured before closing - or halt the closing altogether. Sometimes, though, for one reason or another, things get missed. And, when they do, they can threaten your rights to the property.
Types of Title Insurance
There are two different types of title insurance - a lender’s title insurance policy and an owner’s title insurance policy.
As its name suggests, a lender’s title insurance policy is one that protects the lender. If you are financing your property, there is a good chance that purchasing this title insurance policy will be a requirement from the bank. Because they have a vested interest in the property, they want to protect themselves should any defects appear. It is important to note that this title insurance does not protect you.
An owner’s title insurance policy is designed to look after you. It is not required that you purchase it, although it is highly recommended.
Both of these policies involve a one-time fee at closing - per policy. A lender’s policy remains in place until the mortgage is satisfied and an owner’s policy remains in effect as long as you - or your heirs - have an interest in the property, whether commercial or residential.
How Title Insurance Works
So, how does title insurance work?
If you get through your closing, move into your home, and three years down the road someone knocks on your door stating they hold the deed to the property or someone calls to demand payment for a judgment, what do you do?
Well, if you don’t have a title insurance policy, this may be the moment you start to panic and then go to fight the claims by hiring an attorney and paying the costs on your own. However, if you chose to purchase a title insurance policy back when you closed on the property, you would simply file a claim with the company and let them handle it.
It’s that easy.
Discover More About Title Insurance
Have questions about title insurance? Ready to learn more? At Reputation First Title Agency, we know just how overwhelming the home-buying process is - so having a trusted leader on your side can make everything move smoothly. We’re here to answer your questions and help you throughout the title process.
Contact us today at one of our two convenient offices:
Livonia (734) 432-0100
Shelby Twp (586) 612-5400