What Does Title Insurance Cover

Apr 1, 2024

Buying a home is a significant milestone in life, and it’s worth ensuring its safety. Title insurance, provided by experts like those at Heights Title, is the best way to protect your investment in ways you may not even anticipate.

What Does Title Insurance Cover?

Title insurance protects you from unexpected hiccups related to fraudulent claims, forgotten heirs, and boundary disputes. So, what does title insurance cover? What are the types? And what are the risks of skipping it? That’s what we’ll cover!

What Does Title Insurance Cover?

A clear title is an essential factor in all real estate transactions. A title company must do its due diligence regarding title checks to understand whether there are liens or claims against them before they issue another title. While traditional insurance shields against future mishaps, title insurance protects against claims for past occurrences.

Title insurance usually protects against the following:

  • Another party’s ownership
  • Forgery, fraud, or incorrect signatures on documents
  • Records with flaws
  • Restrictive covenants, or terms that take away from the value or enjoyment of the property, like unrecorded easements
  • Property encumbrances or judgments, such as outstanding liens and lawsuits

What Is a Title Search?

A title search is a thorough examination of public records that confirms there aren’t claims on the property and determines its legal ownership. A title wouldn’t be proper if there were unresolved building code violations or erroneous surveys, and that’s what a title search serves to avoid.

What Are the Types of Title Insurance?

There are two main types of title insurance: owner’s and lender’s. An owner’s title insurance policy provides additional protection to safeguard the owner against any financial risks that may not be covered by title searches. An owner’s title insurance is purchased by the seller and is optional, and it serves to protect the buyer against title defects.

On the other hand, the vast majority of lenders dictate that the borrower must purchase a lender’s title insurance policy. This is to safeguard the lender should the seller fail to legally transfer ownership rights. A lender’s policy serves as protection for the lender against any loss. Since there would be an issue policy, the buyer can rest assured that the title search for the property was completed. Owner’s title insurance is a viable choice if you’re going to purchase your own home and will continually pay a mortgage. This is because in that case, you’d own a larger portion of your property, which would result in a bigger loss should a claim come up. Owner’s title insurance policies become increasingly important according to the duration of time you intend to spend in the home you purchase.

Who Creates a Title Insurance Policy?

Typically, a title agent or title attorney only begins their title search after an escrow officer or lender opens the title order. After that, a draft report is created for the customer to review and approve. Then, the escrow gives instructions regarding the recording of all closing documents. Finally, when the recording is confirmed, the final title insurance policy is created after the funds are disbursed and demands are paid.

What Does Escrow Mean?

When a third party handles the funds of a transaction, it’s called escrow. In the case of real estate and house sales, the third party is typically a title company or an attorney.

What Are The Risks of Not Creating a Title Insurance Policy?

Not creating a title insurance policy can expose owners and lenders to various risks and potential financial losses, including:

  • Undiscovered ownership claims: Plenty of issues could lead to an undiscovered ownership claim, with another party having a legitimate claim to the property. The risks multiply if you don’t have a title insurance policy.
  • Liens and encumbrances: These include judgments, mortgages, and unpaid taxes—all of which title insurance protects against.
  • Fraud and forgery: If there were any forged signatures on property documents or fraudulent transfers of ownership, you could risk legal disputes and financial losses to settle those matters.
  • Errors in public records: Public records aren’t infallible, and they can cost a lot of time and money when it comes to real estate property. Issues with incorrect property boundaries, inaccurate legal descriptions, and recording mistakes can all lead to legal issues.
  • Inability to finance or sell the property: Without a title insurance policy, it can be harder to secure financing for the property. It would also make buyers hesitant to purchase the house if you decide to sell it.

Final Thoughts

Don’t underestimate the importance of title insurance. It’s a safeguard against unforeseen issues that can arise despite thorough searches. Before you brush it off as just another cost, realize its value and how it protects your home. Contact Heights Title now to learn more and ensure your property’s safety.

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