If you're wondering why your attorney's trying to sell you on owner's title insurance, you're in the right place. As many as 5% of homeowners claimed on their title insurance at one time or another, and when they did, they were mighty glad they had the protection!
If you ever have to make this kind of claim, there's a good chance you'd have to fork out a lot of money to cover your costs. Simply put, the expenses associated with a defected title can be costly, so it's better to be safe than sorry.
What's Owners Title Insurance?
Before we delve into why you need insurance, we'll quickly explain what owner's title insurance is.
When you buy real estate, you're given the "title" to the land you've purchased. This means the owner has a right to possess and use the property.
However, the type of claim you have over property can vary. The most common forms include:
- Tenants in common
- Joint tenants
- Right of survivorship
- Life estate in the home
One of the reasons why there are so many kinds of "titles" is because land is used for all sorts of reasons. As such, you can buy the right to use it for a specific purpose.
Therefore, occasionally, someone (other than the apparent owner) may own and have rights to specific aspects associated with the property. Some of these are:
This is where homeowners sometimes find themselves in a pickle and rely on title insurance to bail them out of trouble.
Below are a few more reasons attorneys encourage you to take out this kind of protection.
1. Offers Protection from the Past
Title insurance provides coverage in the unfortunate event a future claim is made over rights to your land. If you suffer subsequent losses due to defects in your title, you can rely on this protection to compensate you.
The fantastic thing about this kind of insurance is that it doesn't matter if these issues were the result of a byproduct of something that happened long ago.
These risks aren't always obvious, but they're usually costly both concerning time and money. This is why title insurance provides homeowners with peace of mind.
2. Protect Yourself from the Following...
When you take out title insurance, you protect yourself from these situations:
- Fraud: namely, a false transfer in ownership rights
- Accidental errors (either manual or electronic) in recording and filing documents affecting the state of your title
- Unreported liens registered against the property
- Easements associated with the property
- Other title defects existing before you took out your policy
Although the number of claims made and paid to policyholders is relatively small, the indefinite nature of land ownership means there are plenty of situations (no matter how rarely they occur) where title insurance saves you hundreds, if not thousands of dollars in legal expenses.
This is especially true if you're purchasing a foreclosed property. These kinds of properties rapidly increase the likelihood of dealing with a defective title.
In the most severe cases, your insurance could even compensate you for the forfeiture of your property.
3. It's Not as Expensive as You Think
Two primary factors determine the price of title insurance:
- The location of your property
- The cost of your mortgage
However, out of the two, the state where your property's located is usually the main factor impacting the rate. Individual states hold insurance providers accountable to different regulatory standards.
The stricter the regulations, the more expensive the insurance. This is because, typically, more work is undertaken by the insurer before they're able to provide customers with a policy.
For example, insurers may be required by law to verify the history of your title. Tasks like this take a lot of time and energy to carry out.
In general, owner's title insurance will set you back anywhere between $700 to $2,000.
Are There Other Factors That Drive the Cost of Insurance?
In short, yes.
Other financial matters such as making a smaller down payment on the property and having a lower credit score might increase the rate of your title insurance.
All in all, you might save a hefty amount on your upfront costs by refusing to take out title insurance. But, you need to put this expense into perspective.
These policies usually never expire. So, for the cost, they're worth their weight in gold. This kind of coverage can protect you from thousands of dollars worth of trouble, even if complications arise years after you've bought the property.
4. An Extensive Title Search
As we've just mentioned, title insurance providers sometimes conduct extensive title searches on the property.
Even if a state doesn't demand insurers to conduct these searches, they may do so anyway. A good quality provider should offer this service. Our best advice is to contact them directly to find out specifics.
A thorough title search minimizes the likelihood of a property owner having any future issues in the first place. Then, in the unfortunate event, you still have trouble, you'll have the coverage to fall back on. It's a win-win!
Do You Have More Questions?
If you found this feature on owner's title insurance interesting, then we're confident you'll enjoy the other pieces published on our real estate blog. We discuss everything from the role a power of attorney has to reasons you need a lawyer to complete commercial real estate transactions.
Alternatively, if you have any questions about real estate, organizing your estate, or business law, please feel free to reach out and contact us. One of our team members will happily get back to you with a helpful response as soon as they can.