Protecting Your Biggest Investment
When you’re buying a home, there are so many add-ons and documents to sign and consider that specifics of it all may get lost in the shuffle. Title insurance is one of those documents, especially because it’s a one-time cost, usually at closing, that lasts as long as you or your heirs have an interest in the property. The cost is fairly minimal as well. It usually costs about .5% of the total cost of the home, and in the grand scheme of buying real property, that’s a fairly low price. So what is title insurance, and why do you need it?
Title insurance is exactly what it sounds like it might be. It protects you and your title both before you purchase the property and long after. Situations may arise during the purchase of a home that are unforeseeable both by the current owner and your real estate agent. For example, an owner might think they own a property outright as an heir, but a title search may come up with a relative who also has partial interest. In the sale of a home, all interested parties must be on board and sign all legal documents, independent of who has actually lived at the property. A title search may also come up with liens against the property from unpaid contract work or unpaid local or state taxes. Those liens can come up whether the property is new or old. Many times people who buy new construction don’t think they need title insurance because they either assume their builder is reputable or because they think the property wouldn’t have had any work done to warrant a lien. Whether you have an honest builder or not, things can always slip through the cracks, property lines could be unclear, or there might be an error in the deed.
Your insurance will give you peace of mind that you will be protected against these or any other issues that may arise with your title. One-third of all title searches come up with a problem that is fixable before closing. Names spelled incorrectly and missing information are usually the culprits. Bigger problems like conflicting wills, forgery, existing liens, and undisclosed heirs will likely come up, but there is a chance that you will complete closing and months or years later you get a knock on the door from someone who claims they have interest in your property. If you don’t have title insurance, and this person is correct, you will be out the hundreds of thousands of dollars you owe or have paid for the property. Having the insurance means that the title insurance company will fight for you. They will pay any legal fees that accrue, and, if you lose, will pay your loan to the bank in full. You may lose the house, but you won’t be in financial ruin.
There are two types of policies that you may either have to buy or may want to consider buying. The first type of policy is a lender policy. This policy is oftentimes required by big lending institutions to protect them against any issues that may arise on the transferring of real property. It won’t protect you as a buyer, but it won’t be entirely detrimental to you either. The insurance company will still fight for your bank legally to have the title outright, which is a benefit to you, but if there is a problem and the title has to go back to a previous owner, the insurance company only reimburses the bank for the cost of loan, and any money you’ve put down or paid toward the property is lost. To protect yourself, you’ll want an owner’s title policy. It will do all the things I previously outlined, but instead of only your bank having protection, you will have the protection as well.
In a market that moves as quickly as the DC Metro Area’s, having title insurance is never a bad idea, especially if you consider the cost versus the risk. It costs so little and can protect so much. Granted, as we’ve gotten better at keeping records, fewer and fewer issues have arisen, but when your home and financial future are the stakes, this protection can go a long way.