Though most individuals are familiar home insurance, not all home owners are knowledgeable about title insurance. However, this form of insurance can be very helpful in times of need. To determine how it could be of assistance to you, check out our breakdown of title insurance, its benefits, and some common issues that individuals can face in regards to a title.
What is Title Insurance?
In a nutshell, title insurance covers events that may have happened before the date a title was issued to a new party, and it does not cover events that happen after issuance. In other words, it protects the new owner from any missteps of the previous owner.
Before a new title insurance policy is issued, an insurer will do a title search. This search tends to reveal a number of possible issues:
- incorrect names on the title
- improper vesting
- incorrect notary acknowledgements
- outstanding mortgages
- tax liens
- court judgments
Thankfully most of these issues can be cleared up and the insurance process may move forward. With the lender doing this in-depth search ahead of time and making sure that the titles are clean before insuring them, the risk of claims being filed is greatly decreased.
For this reason, many title insurance fees are relatively low. In fact, many require only a one-time fee. This also helps to protect the individual seeking to obtain the title. If there are any issues that arise that cannot be cleared ahead of time, individuals could decide that it is not a proper investment.
Common Title Problems
Even considering the diligence that goes into researching and clearing titles, there are still title problems that individuals may face. Fraud is a major component to possible issues. Prior owners may have forged documents, power of attorney, mortgages or satisfactions or releases of mortgages.
Even worse, they could impersonate the true owner of the property all together.
There could also be instances where an individual is unintentionally committing fraud, if they think they have the power to sell a property but do not. This scenario is more prevalent in cases of inheritance, divorce, spousal death, dealing with minors, incompetence, or undisclosed heirs.
Outside of fraud there are a few other instances where individuals may have issues with purchased titles. Individuals may purchase a clean title, yet have limited or restricted access to the property. There could also be some unintentional issues with documentation, such as:
- errors and omissions in transcriptions
- failure to preserve original instruments
- incorrect indexing
- lack of authority of notary
- inadequate descriptions
- incorrect interpretations of wills
- invalid tax titles
These issues may not be easy to address and may prevent the sale of title indefinitely. Unfortunately, for those who may have already begun the process to purchase a title, these issues can lead to financial loss if the problem cannot be rectified.
Along with issues directly with the title, there are some concerns that individuals should address with title insurance itself. There are two types of title insurance:
- Owner’s policy: This policy protects the buyer in the case of an issue with the title.
- Loan policy: This policy protects the lender should there be any issues with the title.
It is important for buyers to know the difference between the two to ensure that they are fully protected.
Benefits of Title Insurance
There are a few different benefits to obtaining proper title insurance. Quality insurance policies offer protection against additional issues beyond the title, including:
- zoning or subdivision violations and restrictions
- damage to the home due to someone’s easement rights
- interested parties refusing to buy land due to a neighbor’s structures that are on the land
These are just a few of the additional benefits to having a quality title insurance policy in place. Working with a representative of an insurer can help to make sure that you are properly covered for common issues that may be faced. However, it is still important to consider coverage for other, uncommon incidents.
Depending upon the area that live in, such as flood zones or affluent neighborhoods, there may be certain aspects that you should consider. Consulting a knowledgeable professional can help you to both understand what issues you may be facing and also plan for your future.
As you can see it is very important to make sure that you fully understand what is title insurance. Making sure that you understand the intricacies of this type of insurance and how it can protect you can aid you in making the best decision for you and your family. For more information or to weigh your options, speak with a local representative in your area.