A home’s title may be a lesser-known detail of the real estate transaction, but it can cause a home sale to fall apart if not properly handled. A property must have a “free and clear” title.
Title insurance acts as a safety net, protecting homeowners from issues like unpaid liens, ownership disputes, or record errors.
Many real estate transactions involve complex title issues that must be resolved before closing, making title insurance essential.
Lenders typically require a buyer to purchase title insurance during the mortgage process. Title insurance protects the lender’s investment in case any issues arise that could affect their ability to collect on the loan later.
Title insurance is often an added cost when purchasing a home, and real estate professionals can help their clients plan ahead. The average cost is 0.42% of the property’s purchase price.
This one-time payment is usually included in closing costs.
Real estate professionals should guide buyers through escrow accounts, deposits, and title insurance.
Title insurance is a key component of a real estate transaction, and it’s important to be aware of common terms.
Abstract of Title: Summary of ownership history including past owners, mortgages, liens, and legal issues.
Chain of Title: Sequence of ownership from original owner to current owner.
Title Defect (Cloud on Title): Issues like unpaid liens, forged signatures, or unsettled claims.
Lien: A legal claim against the property due to debt.
Title Search: Examination of public records to verify ownership and detect issues.
Escrow Account: Neutral account holding funds until transaction completion.
Indemnity: Protection from financial loss if title defects appear.
Survey: Property boundary measurement to detect disputes or encroachments.
There are two main types of title insurance: Owner’s title insurance and lender’s title insurance. They offer two distinct benefits that home buyers should carefully consider before purchasing.
Lender’s title insurance protects the lender the bank or financial institution that is funding the buyer’s mortgage in case any title disputes or defects are discovered after a transaction closes. It’s a way for lenders to protect their investment. Lenders typically require buyers to purchase this type of title insurance when approving a mortgage. Lender’s title insurance only covers the lender’s financial interest in the property (aka the loan balance); it does not cover the homeowner’s full investment. Lender’s title insurance gives the lender the ability to recover the balance of the loan or extra costs when resolving title disputes.
Owner’s title insurance protects the buyer from potential title issues or disputes that may arise after purchasing the home.
It safeguards the owner’s financial investment for the entire duration of ownership, unlike lender’s insurance which lasts only during the loan period.
This insurance is optional, but highly recommended for stronger financial protection.
Benefits of Owner’s Title Insurance: