8 Facts Every Homebuyer Needs to Know About Title Insurance
- At August 30, 2019
- By AvivaGittle
- In Insurance, Real Estate, Writing Sample
0
This Upwork client manages a website that is all about insurance.
Nearly every homebuyer has purchased title insurance – whether they know it or not. Given that 63% of homeowners have a mortgage, there’s a good chance that if you own a home, you have a lender’s title insurance policy. That protects the lender – not you. Here are 8 facts about title insurance you need to know before you buy a home.
#1 – It’s Not Like Homeowners Insurance
Homeowners insurance protects you from losses that may happen in the future. Title insurance covers losses that may result from title defects discovered after you purchase a property. There are many things than can “cloud” a title. For example, a mechanic’s or tax lien. The title company researches public records to ensure the title is “clear” before you purchase the property. They are indemnifying you for future losses due to defects they may have missed in their research. Or defects that are unknown and arise later, such as an heir who makes a claim on the property.
#2 – A Lender’s Title Policy Doesn’t Cover You
If you are taking out a mortgage on the home, the lender requires that either you or the seller purchase a lender’s title insurance policy. This covers your lender up to the amount of the loan. It will handle legal expenses they will incur defending against a claim. It will also cover losses that result from a successful claim. It does not cover your legal expenses or your losses.
#3 – Title Insurance Is Paid Once
You pay for title insurance at closing. That’s it. It covers you for as long as you – or your heirs – have an ownership interest in the property. According to ValuePenguin, the average cost is $544 for a lender’s policy and $830 for an owner’s policy. Don’t feel bad for the title insurance companies. They only pay out 4-5% of the premiums they collect in claims. (It’s 100% or more for car insurance.) However, since a successful claim could force you to relinquish the property, it’s not a risk you want to take.
#4 – All Title Companies Are Not the Same
Title insurance is a $15 billion-dollar industry. Most of that money is collected by just four companies: First American, Fidelity, Stewart, and Old Republic. (They issue an estimated 85-90% of the policies.) It is safer to buy a policy from a company that is likely to still be in business during the time you own the property. Which is why the Big Four continue to dominate the industry.
#5 – You Are Not Required to Pay for Title Insurance
Typically, the buyer pays for the lender’s title policy and the seller pays for the owner’s title policy. These are courtesies – not laws. Who pays for title insurance is negotiable.
#6 – You Don’t Have to Use the Seller’s Title Company
A property listing will sometimes specify that you use a particular title company. You want to ensure it is reputable. If the title insurance company goes under while you still own the property, your policy is worthless. Typically, if the seller is paying for the title policy, they get to select the company. If you feel uncomfortable with their choice, you may be able to negotiate to use the title company of your choice.
#7 – Title and Escrow Are Not the Same
Although realtors will often use “title” and “escrow” interchangeably, they are not the same thing. An escrow company is a neutral third-party who holds funds, records the deed, and manages the real estate transaction to completion. It just so happens that many title companies also handle escrow.
#8 – A Basic Policy May Not Be Sufficient
The basic title policy does not cover all possible title defects. There are several endorsements that can be purchased to extend coverage. Future issues related to zoning, property access, right-of-way issues, and much more can arise. Talk to the title company about which endorsements may apply to your property and situation.
Protect Yourself
Buying a home is a huge investment. The risk of a title defect is low, but the consequences are high. Protect yourself with an owner’s title policy. Hopefully, you’ll never need to use it.
Resources:
https://smartasset.com/mortgage/buying-a-home-do-you-need-title-insurance
https://www.magnifymoney.com/blog/mortgage/u-s-mortgage-market-statistics-2018/
https://www.gentrylawgroup.com/title-policy-endorsements-get/
https://www.valuepenguin.com/title-insurance/average-cost-of-title-insurance
https://www.valuepenguin.com/2017/05/auto-insurance-rate-hikes-also-likely-2018