April 27, 2018

Do You Really Need Title Insurance?

If you’re buying a home or plan to buy one soon, you’ll be urged to purchase title insurance, or in some cases, it may just be added to your closing costs without being specifically brought to your attention. But what is title insurance and do you really need it?

What Is Title Insurance?

Title insurance protects home buyers and mortgage lenders from defects or problems with a land title in the transfer of property. If there is a title dispute resulting from a sale, the title insurance company may be responsible for paying specified legal damages, depending on the type of policy. Put in simpler terms, title insurance protects the homebuyer and their lender in case the seller of a property doesn’t own it free and clear of liens or other claims to it.

Do You Need Owner’s Title Insurance?

It is always recommended that you obtain owner’s title insurance when you buy a home or land. And who pays for the owner’s title insurance can vary from state to state. In some states, it’s added to the seller’s closing costs and in others, it’s added to the buyer’s closing costs.

If you don’t choose title insurance when buying a home, you are taking a risk. If in the future after settlement, someone steps forward and claims that they have rights to the property, you will have to defend your rights to it in court. On the other hand, if you have title insurance, you are protected in the event something like this occurs. A title insurance policy will typically pay to defend you in court if anyone challenges your title. And should you lose the case, title insurance will compensate you for the equity you have in your home.

How Does a Title Company Ensure the Seller Has Rights to Sell?

First, a title company or attorney will search public property records to trace the ownership of the property to make sure that the seller really owns the property. They will look for things such as clerical errors and omissions, undisclosed heirs who might have claims to the property, and liens on the property. They will also be on the lookout for any signs of fraudulent activity.

Once they’ve determined that there are no issues and the seller really does really have the right to sell the property, then they will work with an underwriting company to issue a title insurance policy.

What Is Lender’s Title Insurance?

Most lenders will require that the homebuyer purchase lender’s title insurance. This type of policy protects the lender’s interest in a property if a title issue arises from the past. The premium that the buyer pays on this type of policy goes down over the life of the loan as the amount owed to the lender decreases.

Want Faster Mortgage Processing? Lincoln Abstract & Settlement Services Can Help

Lincoln Abstract & Settlement Services is nationally recognized and trusted by realtors and lenders to streamline the flow of documents and funds for faster, stress-free closings. We value communication and efficiency, working proactively to identify and resolve issues that could potentially delay the process. To learn more about our unrivaled services, call us at 1.877.696.5462.