What is Covered in Title Insurance?
Homeownership is most often the biggest financial obligation people incur in their lifetimes. In fact, owning a home in the United States is a fundamental part of wealth building. For this reason, it's crucial to understand the ins and outs of the home buying process.
(Mar 25, 2023)
When you take out a mortgage to buy a home, one of your closing costs will be title insurance. Title insurance is a form of indemnity insurance that protects the lender in the event of financial loss resulting from third-party claims on a property.
Most mortgage borrowers view the closing process as being shrouded in mystery and go through the borrowing process with only a minimal understanding of what it entails. Even though the title insurance is designed to protect the lender, it’s actually a good idea to buy title coverage for yourself as the homeowner. Here’s why.
How Title Insurance Works
When you buy a home, you’ll want to do your due diligence and ensure the property has a clear title that’s free from liens and any other ownership claims.
There are two types of title insurance – lender’s title insurance and owner’s title insurance – both of which are paid for by the seller. The lender's title insurance protects the lender's interests in the property in the event of a third-party claim, while the owner's title insurance protects the buyer's equity in the property.
An owner's policy typically isn't mandatory, but it's a one-time premium that can help protect your investment. It protects you for as long as you own the property. If you choose not to purchase owner's title insurance, you may find yourself financially liable for any defects with the property's title that pop up down the road.
Say you buy a property from a deceased person's estate, and an unknown heir turns up months or years after the transaction closed. If you have title insurance, the policy will help cover the costs incurred in settling the heir's claim; if not, you'll have to pay for the costly fees yourself.
When does the title insurance come in handy? A title claim could arise at any time, even after you’ve owned and lived on the property for years. The most common lawsuits filed against a title include back taxes, liens, and even conflicting wills. A title insurance policy covers any defects or problems that may occur when the title changes hands.
What You Need to Know About Title Insurance in Florida
In Florida, Title insurance policies are specifically designed to protect homeowners against any defects, damages, and title issues that may occur. When purchasing title insurance, the insurance company will conduct an extensive title search of the property to uncover any flawed records, outstanding liens, or falsified documents.
Conducting a title search is a great way to ensure the property you're purchasing is free from hidden title problems. That's not to say that undiscovered issues or claims may not arise in the future.
Purchasing title insurance for your Florida home protects you and your heirs from pretty much any challenge to your title and unforeseen legal claims. These are some of the issues an owner’s title policy can protect you against:
- Forged title deeds and forged transfers of ownership rights in the property
- Undisclosed liens for any unpaid remodeling or construction work on the property or taxing entities
- Debts of previous owners who used the property as collateral
- Building code violations by a previous owner
- Unintentional errors in the recording or filing of documents
- Conflicting wills and claims related to a forged power of attorney
- Boundary disputes, encroachments, and property survey errors
- Claims from an ex-spouse who's approval is missing from the sale of the property
- Any other title defects that existed prior to the start of your policy
Essentially, if they're to be a challenge to your ownership of the property, a title insurance property would protect you up to the sales price of the property.
Do You Really Need Owner’s Title Insurance?
Homeowners that hesitate to purchase owner's title insurance do so because it can feel like just another cost. As with most insurance policies, owner's title insurance is meant to protect you from any unforeseen hazards that might occur. It’s not surprising that a lot of home buyers tend to fixate on the "might" part. But, however you look at it, the resistance to title insurance doesn't stand up to the test.
Although you may never need it, title insurance is a small price to pay. It protects you and your investment in the event anyone challenges your ownership rights or title after you close on your home. And the peace of mind that comes with it makes it well worth the price.
Here’s the thing: If the lender goes the extra mile to protect their interests in the property, why shouldn’t you?
(Mar 25, 2023)
