Why Do You Need Title Insurance?
“Title insurance” is one of the terms that people come across when searching for a mortgage. If you wonder whether you need this type of insurance when buying a home, the first thing you should know is that there are two basic types of policies that provide title insurance coverage: one for the homebuyer and one for the lender issuing the mortgage.
Generally, a lender’s policy insures the lender for the amount of the outstanding mortgage balance in case any title defects come up over the life of the mortgage. Conversely, an owner’s policy is meant to protect the homeowner from any legal issues and financial losses associated with defects in title to a piece of property.
The lender’s and owner’s policies can be purchased separately or bundled together. Unlike other types of insurance, which are renewed annually or biannually and allow policyholders to pay the premium in installments, title insurance is a one-time, upfront fee paid by the seller or buyer before closing. In Florida, the person responsible for purchasing the lender’s policy varies by county. However, this condition can be negotiated in the purchase agreement.
Do You Really Need Title Insurance?
The lender’s policy is a mandatory part of the mortgage process. On the other hand, an owner’s policy isn’t a typical requirement of real estate transactions. What’s more, most homeowners never use their title coverage. This aspect can discourage homebuyers from purchasing an owner’s policy. However, if a title-related issue arises one day, it will be too late to get insured. That’s because, similar to other types of insurance, title insurance doesn’t cover an insured for claims filed before the start date of the policy.
Although title insurance companies perform a thorough examination of public records in order to make sure that a piece of property doesn’t have a bad title, they cannot guarantee there aren’t any problems with a title. If title defects are found, the insurer must inform you and require the seller to correct the problems before closing. If you purchase a home with undisclosed title issues, and a claim arises from a defect covered by your policy, title insurance will protect you against losing the right to live in the home as well as the equity you’ve built up. In this case, the title insurance company will either compensate you for financial losses, including legal costs, up to the amount of the policy or will try to work out a solution that’s agreeable to all those involved.
When Is an Owner’s Policy Necessary?
Title insurance policies typically cover the insured parties for claims and legal fees that may arise from problems like: forgery or fraud, mistakes and inaccuracies in the public records, unreleased mortgages, delinquent property taxes, misinterpretations of wills, undisclosed heirs to the property, adverse possession, and prescriptive easement. You should consider getting an owner’s policy when:
- Buying a new construction home – Although new construction homes are typically free of title defects, a newly built home can still carry various types of liens for unpaid new construction loans, property taxes, HOA/CDD fees, as well as for materials supplied and/or services rendered by subcontractors but unpaid by the general contractor.
- Purchasing a pre-owned home – When buying a previously owned home, an owner’s policy will protect your investment against claims that may arise from title problems, such as liens or judgments filed for unpaid taxes or work done by contractors, and/or ownership claims made by missing or undisclosed heirs, or by ex-spouses for failure or refusal to comply with a divorce decree requiring the sale of the property. If someone else, such as a lender, contractor, child, or ex-spouse, has a right in the home you bought, and you don’t have an owner’s title insurance policy, you might not only lose the home but also be required to repay the mortgage you took out in order to buy the property.
- Purchasing a short sale or foreclosed home – Just as with buying any other property, ensuring that a short sale or foreclosed home has a clear title is critical before investing in it. Because in both situations the homeowners can no longer afford the mortgage payments, there’s a risk that a short sale or foreclosed home also carries liens for other unsatisfied financial obligations, including delinquent property taxes, HOA/CDD fees, contractors’ bills, etc.
To sum things up, title insurance provides a unique type of coverage that can literally protect you against the potential loss of your most valuable asset: your home. That’s why real estate professionals recommend it. If you’re looking for title insurance, make sure that you purchase both the lender’s and owner’s policies from a reputable and stable company expected to be around decades after you buy the home. If you’re looking for loan programs that could help you purchase a home, call North Florida Mortgage at (904) 822-7520 today!
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