Housing News

5 Misconceptions about Title Insurance

Knowing these facts could save your property.

A 45-year old mom from New Jersey decided to forego obtaining a title insurance policy. She thought there was absolutely nothing that could go wrong with her purchase, since the house was owned by her good friend. Almost two weeks after she moved in, a woman from New York knocked on her door and demanded that they talk about some very important matter. It turned out that the original owner of the house was her stepsister. She brought legal documents that declared her as another heir to the property, but she was never consulted about the sale of the house. In the end, the new buyer had to shoulder thousands in fees for getting out of the mess that she unknowingly became involved with.

Had she secured title insurance, the buyer could have been protected from such loss. Title insurance is an insurance policy that assures the property title has absolutely no hidden liens and claims. A title insurance company digs in the thousands of public records including deeds, mortgages, wills and tax records to search for the evidence that clears the property from any problems, defects and false claims in its ownership.

Many home buyers have misconceptions about title insurance. Here are five of them:

“#1. The title insurance is paid annually as long as the owner has not transferred the title”.

Title insurance is paid only once. You can see it in your closing costs that this is a moderate part of the total expenses. A survey conducted by the Mortgage Bankers Association in 2007 found out that the average insurance in Buffalo, NY is $1,248.35 while in Cheyenne, WY it’s only $469.19. In other words, it’s a low-cost protection.

“#2. The bank’s insurance is enough to cover any unforeseen loss.”

Without title insurance, you will be subject to more losses since the bank will only cover its own exposure and not yours. If you get into a dispute, you’re left on your own to defend the title. A good thing to remember is that the lender’s policy is much different from the buyer’s. The lender may be covered but the buyer will certainly not be, not even a single cent.

“#3. The title insurance fee included in the closing costs is already binding.”

Most buyers think that they cannot find another title insurance company to cover them. You can always search online and choose the best price. There’s no stopping you from contacting more policy providers to get the best deal.

“#4. There are only few defects in the title that the insurance can protect the buyer”.

Absolutely not. Some of the problems that it can defend you against are:

  • Errors in deeds
  • Unpaid taxes that were thought of as already settled
  • Unrecorded liens
  • Forgery on a number of important documents
  • Undisclosed heirs to the property especially stepchildren, former spouses, etc.
  • Liens by contractors
  • Partial interest in the property
  • Fraudulent actions by the seller during their ownership
  • Technicalities in intestate, dying without leaving a will, and mental state of the owner, etc.

“#5. You should only buy insurance after you move in”.

Here’s where buyers get to save. In most states, buying title insurance before closing will allow you to get a reduction in lawyer’s fees. It’s usually set at $200 or less.

You need to act early; or else, you’d be suffering from more losses and the potential headaches!

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