More than 80% of Americans purchase title insurance with their new home. Whether you’re an agent looking to protect your clients, an investor hoping to flip a property, or a new homebuyer eager to purchase your first house, title insurance is a necessary service that will minimize the risk of your investment.
What Is Title Insurance?
When you purchase a home, the seller promises that he or she has the right to sell that property and that there are no legal disputes over the ownership of the property -- in other words, the title is “good.” Despite the seller’s assurances, however, legal claims and property disputes can arise well after the transaction has taken place. Even if the seller warrants good title in the deed, the seller may not have the money to pay for losses when a problem surfaces.
Title insurance protects the property rights of the buyer and ensures that his or her investment is preserved in the case of a legal dispute. For buyers, title insurance is a promise that the time and money put into a real estate purchase will not be lost due to a fault in the transaction.
Property passes through many different hands as the years go by, whether through a purchase and sale or through inheritance. Title is only considered good if each transaction and/or devise or inheritance was proper and legal. Title companies research the chain of ownership before issuing a title insurance policy. If problems are found, the company attempts to resolve them before the closing. Common problems include split ownership, inheritance disputes, and even forgeries and fraudulent sales or foreclosures.
Lender’s vs. Owner’s Title Insurance
Typically, where the buyer is financing the purchase of the property, the lender will require a lender’s policy of title insurance. The lender’s policy ONLY protects the bank or lender from liability if a title dispute occurs – it does NOT protect the buyer. A homeowner cannot make a claim under a lender’s policy of title insurance. An owner’s title insurance policy is the only way to protect a property owner’s rights in the property.
What Is Included When You Buy Title Insurance?
Working with a title company is the best way to protect the buyer’s property rights. The cost of the premium is regulated by Florida law. Most title insurance costs around 0.5% of the value of the home. The cost of title insurance is always a one-time fee paid at closing. Although the coverage may differ slightly, most title insurance policies include the same basic elements.
- Detailed title research: The title company will first check the validity of the title. A “cloud” on title -- or a problem with the property rights – must be cleared up before the transaction is closed. Title companies perform extensive research and may even turn up issues of which the previous owners were unaware.
- Purchase reimbursement: Most title insurance policies cover the full value of the property when the original purchase was made. If a title dispute is successfully litigated, the current owner will be reimbursed for his or her purchase.
- Legal fees: Title insurance typically covers legal fees in the case of a title dispute. The title company may select an attorney to litigate the case.
- Protection for Heirs: Title insurance stays in effect when a property passes from a previous owner to his or her heirs. As long as the deed remains in the family, the chain of ownership is protected by the original insurance policy. When moving a property between family members, it is a good idea to check with the title company to make sure that both ownership and insurance have been correctly transferred.
The Importance of Title Insurance
Title insurance shields a buyer against covered title defects affecting the property thereby protecting his or her ownership rights in the property. For a one-time premium paid at closing, a buyer can be assured that even if a dispute is legitimate, his or her title policy will protect him or her against loss from covered claims. Title insurance includes coverage for legal expenses which may be necessary to investigate, litigate or settle a title claim. An owner’s title policy covers an owner for as long as her or she holds an interest in the title to the property, and it automatically continues for the benefit of the owner’s heirs.
Common Title Problems
There are numerous title issues that could cause an owner to lose his or her property. Title disputes occur when there is any doubt over the ownership of a property. Below are just a few of the many title problems that might occur:
- Inheritance claims: Heirs to a property do not always come forward immediately after the previous owner passes away. Problems might also occur if family members dispute the inheritance or if an undiscovered will is found after the sale.
- Forged documents: Not all deeds are drafted in good faith. The signatures might be forged, the owner might have been impersonated, or the sale might have occurred through coercion or force.
- Unknown liens and encumbrances: Property rights are often used as collateral against other debts. If the previous owners owed money or had a second mortgage, title might be disputed by a third party - even if the debt is not that of the owner.
- Recording errors: Although a recording error doesn’t always invalidate a title, small mistakes can be very expensive to correct after the fact. Recording errors on previous deeds can be particularly difficult to solve, especially if the former owners have passed away.
- Easements and boundary disputes: The rights to a property might not be as straightforward as they seem. A neighbor might claim that the property has different boundaries. The local government may have put an easement on the property that affects the way it can be used. These disputes aren’t always financial, but they can still be costly and problematic.
When You Don’t Have Title Insurance
In the case of a title dispute, the current owner of the property may have to go to court and pay hefty legal fees. Should the claim prove legitimate, the owner may lose his or her title and associated property. Damages could include the cost of purchasing the property and any improvements made to the home. The owner will also experience the stress of losing a home they may have held for years.
Emerald Coast Title Services has been serving the residents of Northwest Florida since 1983. We are a full-service, ALTA certified title and escrow company where customer service is our number-one priority. With our decades of real estate experience, our knowledgeable team of licensed attorneys, closing agents, and title examiners are fully committed to making each closing experience effective and hassle-free.
Please reach out to us if you have any questions about title insurance or would like our assistance with a transaction. We have offices in Destin and on 30A for your convenience.