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Why Is Title Insurance So Important?

Monday, May 3, 2021

If you're preparing to buy a home you know there are a whole host of things to consider. From worrying about a down payment to finding a lender and searching for the perfect home, the buying process can be overwhelming.

No matter how prepared you try to be, often new homeowners find themselves surprised by an unexpected expense. Often the number connected to closing costs is a shocker when buying a home. 

It can be hard to swallow the many fees associated with closing a house. Title insurance is just one part of the closing cost expenses. Have you ever wondered what title insurance does for you?

Unfortunately, it's almost always a part of the home buying process. Read on to learn more about title insurance and why it's necessary.

What Is Title Insurance?

Title insurance is a type of indemnity insurance. It's often required by the lender, although sellers can also seek title insurance too. It protects the insured from unexpected surprises that could arise from the title.

Issues that might arise on a title include issues with the lien, easements, or encumbrances. Once the title has transferred to the new owner, the new lender and owner would be protected if claims were made on the title.

Types of Title Insurance

There are a few different types of title insurance depending on who is seeking the coverage. 

The most common of the two types is lender's title insurance. Almost always a lender requires the home buyer to pay for title insurance at the closing. You might assume since the home buyer is paying for it that it covers them. 

In fact, the lender's title insurance protects the lender. It protects their investment in your home purchase if there are claims made on the property.

Buyers can also get title insurance. This would protect their interests if an issue arose with the title. 

A common misconception is that the title insurance that is part of closing costs covers and protects both the buyer and the lender. 

What Does Title Insurance Cover?

When the title company arranges a closing they will do a title search. They want to b certain the title can be transferred from one owner to the next without issue. There are times, however, when those searches don't find everything.

Title insurance protects against:

  • Filing errors
  • Title forgeries
  • Conflicting wills
  • Liens
  • Undocumented easements
  • Back taxes

These kinds of issues can change the value of a home and raise questions about ownership. The title insurance works to protect against possible financial loss if there's an issue. Remember though, the lender will get their coverage. The buyer must also seek coverage to be protected.

What are the Risks of Not Getting Title Insurance?

if there is not title insurance on a property and an issue arises, like say back taxes. The current owner becomes responsible for them. By getting title insurance, you protect against unknowns that can be very costly. 

Title Insurance and the Home Buying Process

The home buying process can be a little stressful and also quite exciting. The anticipation of a new home is wonderful unless an unwanted surprise arises. The problem with titles is that often you can't anticipate the types of problems that might arise until they're a real problem. 

If you need an insurance policy to protect you while buying your home, we can help. Contact us today to get more information on our insurance services.

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