Protecting your interests. The basics of title insurance
If you’re planning to buy a home, the topic of title insurance will likely surface in one of the many discussions you’ll have with your Realtor or seller.
Like most types of insurance, title insurance is better to have and not need, than need and not have. But what is it, why do you need it, and how does it work?
What is title insurance?
Essentially, title insurance is a specialized insurance policy that protects your mortgage lender against mistakes made in a title search. If you fall in love with a home and there’s not a clear title to it, title insurance protects the bank – and you – if there’s a problem. A clear title means you’ll be able to occupy and use the property the way you want, and that you’re able to sell or pledge your property as security for a loan.
There are generally two types of title insurance: lender’s and owner’s title insurance. The lender’s policy is usually based on the dollar amount of your loan and protects the lender’s interests in the property against a problem with the title. The policy coverage decreases each year and goes away as the loan is paid off.
As its name suggests, the homeowner buys owner’s title insurance, which is in the amount of the real estate purchase, for a one-time fee at closing and lasts as long as you own or have an interest in the property. Owner’s title insurance fully protects the homeowner in the event that there’s a problem with the title that wasn’t discovered during the title search. This type of insurance also pays for any legal fees involved in defending a claim to your title. Think of owner’s title insurance as helping to protect your equity, your investment in a home.
A safeguard: just in case
Title insurance is a safeguard against loss arising from hazards and defects already existing in the title. While claims on title insurance are rare compared to other types of insurance, they still happen and can be a big legal mess to fix.
For example, one of the most common title insurance claims is for the cost of back property taxes that the title company missed in researching a sale. Or there’s not a clear title to the house, especially in cases of divorce. These examples might sound minor, but they can cost thousands in fees without title insurance.
Buying a new home and think there’s a clear title? Many consumers think they’re the first owner if they’re building a home on a lot, but it’s just as likely there were prior owners of the land. A title search will uncover any existing liens, and a survey can determine the boundaries of the property you’re buying for your new house.
Getting the most value
The cost of title insurance depends on the value of your property. In Texas, title insurance rates are set by the Texas Department of Insurance. According to the Insurance Information Institute and Insure.com, here are some tips to consider when buying title insurance:
If you’re buying a pre-owned home or are in a buyer’s market, ask the seller to pay for your coverage. It can’t hurt, and it might just save you lots of green. You might have heard the adage that everything’s negotiable, and title insurance falls into that category.
Ask about inflation coverage. In the case of owner’s coverage, as the value of the home rises, so does the amount of your protection.
Ask about extended coverage. Title insurance policies may exclude coverage in the event of lot-line debates, unrecorded mechanics liens, and easement problems. Extended coverage can provide protection against such claims.
If you buy your own policy in addition to your lender’s policy, check it for exceptions that may leave you with less protection than you want.
To find out more about title insurance, ask your Texas Realtor.
You can also visit TexasRealEstate.com – the online source for consumer-friendly information about real estate in the Lone Star State.
–Art Rolader, chairman of the Arlington Board of Realtors