Why Title Insurance Is A Must-Have for Home Buyers and Sellers
This is a guest blog post by Rikki Puzzuoli, Account Executive at First American Title, serving Michigan’s Oakland and Macomb counties.
Purchasing a home is one of the largest transactions most of us make in a lifetime. From choosing a neighborhood to picking the right type of loan, there is a ton that goes into a homebuying, home seller, title policy, owner’s title insurance, why do I need title insurance, types of title insurance, loan title insurancebuyer’s decision-making process—and understandably so.
But many homebuyers don’t always realize that every property, has its own unique history and identity. While a house may, on the surface, check off all the boxes on your stringent list of requirements, potential defects from years past may encumber your ability to buy or sell.
That is where title insurance comes into play. While an auto insurance policy covers what might happen to a given vehicle in the future, title insurance covers the history of a specific property.
Why Do I Need Title Insurance?
A thorough title search helps to uncover any title defects that might be tied to the property you’re planning on buying or selling. These risks are discovered through a thorough search and examination of public records by highly trained title professionals, often using advanced databases and software. The title insurance policy will then provide protection from the issues that are uncovered throughout the examination process.
Here are just a few of the several dozen title problems that may be uncovered through a title search:
- Illegal deeds
- Errors in public record
- Boundary/survey disputes
- Missing or undisclosed heirs
- False impersonation of previous owner
- Undiscovered will jeopardizing your property rights
- Unknown easements allowing third parties to access your property
- Unknown liens such as bankruptcies, unpaid debts and assessments
- Undiscovered encumbrances, such as a third party holding claim to your property
Once the encumbrances are identified, the title company will take steps to clear them up, so that the homebuyer can purchase their home free and clear of any complications and prior liens. This helps to uphold the integrity of the land records upon which our property registration system is built.
Types of Title Insurance
There are two different paths to title insurance, depending on whether you’re a home buyer or seller:
Loan Policy of Title Insurance
A loan policy is generally required by mortgage lenders, like Ross Mortgage, to provide insurance that their mortgage liens are valid and enforceable and take priority over liens or claims found during a title search. The loan policy lasts for the life of that mortgage until it’s paid off.
Since the mortgage company requires the title work, they are typically the ones who order it–paid for by the buyer.
Owner’s Policy of Title Insurance
The owner’s policy protects the homeowner from any title risks for as long as the policyholder owns the property. Various extended policies and expanded coverages–such as our Eagle Policy at First American Title–also address title issues that may arise after the policy date, such as false claims by identity thieves, neighbors building encroachments and more.
Most people usually order an owner’s title policy once they have a signed purchase agreement and a buyer. Running preliminary title is a good idea, even if you don’t have a purchaser lined up yet, in order to ensure there are no title matters that could potentially delay closing. However, if you just only recently bought your house and have an Owner’s Policy of Title Insurance from the purchase, it may not make sense to order pre-title.
While a seller has the right to say they don’t want to provide a title insurance policy, most homebuyers understand that they wouldn’t purchase a house without one. After all, why would you put hundreds of thousands of dollars into an investment with no idea what you’re walking into?
In most standard purchase agreements, however, there is language baked in that says the seller will provide the buyer with an owner’s policy of title insurance, so it’s rare to see cases where it doesn’t happen.
If you’re ready to ensure a smooth home buying and selling process, it’s time to look at title insurance. I’d love to help you navigate this process, feel free to contact me here, and we can begin the title insurance process together!