Title Insurance may not be one of the many things on your mind when it comes to buying a home. Since it just another one of those fees that appear on your closing documents, you may not even realize it is there. However, there are some things you should know about title insurance and why you need it.
Define Title Insurance
Title insurance is like other forms of insurance in that it protects you from facing a financial loss, specifically property ownership. It protects you against two things: One it secures that the property you are buying will be legally transferred to you from the previous owner; Two is it protects you from any future title defects that may arise. The only difference between this type of insurance versus the standard type of insurance is that there are no monthly premiums. So you pay for the insurance at closing and that is it and even though this is a one-time fee it protects you for life.
Why is it Important?
During the home buying process, a title research company will review the ownership history of the home to ensure there are no title defects. Essentially, the company is confirming the home has a clear title, meaning the owner who is selling you the home has total ownership of the property and no liens or levies against it. However, there is a possibility that an issue could arise years later due to improperly recorded documents, mistakes are ownership history, legal matters or another scenario that occurred prior to you buying the home.
What Happens if I Opt Out?
Technically speaking all types of insurance are there to protect you in case something goes wrong. However, nothing may go wrong, but is that a gamble you are willing to make? Here are some scenarios where title insurance can protect you:
- The seller may have co-purchased the home years ago and now needs the other property owner’s signature in order to finalize the home sale.
- The seller may have inherited the home under the terms of an outdated will and it turns out there is actually a more recent one that left the home to another person – meaning the seller isn’t the true owner.
- If a lien was filed against the home, it’s possible for debtors to legal claim the right to be paid from proceeds of the property’s sale in order to settle debts.
Opting out of owner’s title insurance means you’ll take a loss on your downpayment and principal payments already made. You could also risk losing the home if it is determined that someone else is the true owner due to a title defect.
