Have you heard about the homebuyer who lost out because the back taxes were owed on the property? Probably not. That’s because title insurance companies do their research and solve issues like that before the sale is final.
One question home buyers ask when reviewing the costs of buying a home is, “What is title insurance?” You may have wondered what is a title search and what title insurance protects when analyzing itemized lists of potential closing costs.
In short, title insurance helps protect both the home buyer and the mortgage lender against losses resulting from unknown defects in the title of the property. These defects can include:
- Errors in public records
- Boundary disputes
- Missing heirs
- Previous owner’s bankruptcy
- Unknown easement for roads or utilities
- Unknown liens on the property
- Conflicting wills
- Back taxes owed
While title insurance offers financial protection after the sale, the title search is what gives buyers confidence that nobody can try to claim their property later. During a title search, the abstracter examines public records to determine and confirm the legal ownership and uncover any claims that exist on the property. If claims are discovered, they need to get settled before the buyer takes ownership.
Buying a home may be the biggest investment of your life. Let’s say you have moved in and unpacked your belongings, only to discover that an unexpected issue has invalidated the title. A title insurance policy will protect you from that uncertainty. The title insurer will pay to defend the title or pay valid claims if you have made the one-time purchase of title insurance at closing.
Ask your lender if they work with several title companies and whether the costs for title insurance can be negotiated. Title insurance to protect the lender is a required, one-time cost. But you can choose whether to purchase owner’s title insurance to protect yourself after the sale. The coverage will last as long as you own the property.