Correcting Misconceptions about Title Insurance
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Before you started the process of purchasing your first home or commercial building, you probably had never heard of title insurance. As with the rest of what is involved in real estate transactions, title insurance can be challenging to comprehend. Title Insurance is often surrounded by misconceptions that keep most people from recognizing its importance. To help you understand the importance of title insurance and how it relates to protecting your rights of ownership, here are a few misconceptions we would like to correct:
Misconception # 1 Title insurance provides insurance coverage to protect you from financial loss related to a defect in the status of title to the property.
If it is later discovered, that you do not own what you thought you purchased, or if someone else is claiming an interest in your property, title insurance may make you whole. Your title insurer may file a lawsuit on your behalf, take steps to remove the defect, or pay you money for your losses associated with the defect in title.
Misconception # 2 The title search will protect me from title defects
Before signing the real estate transaction and early in the real estate purchasing process, a title search will reveal the property's history to uncover any issues that could limit your right to purchase. There may be hidden title defects, even after a detailed search of public records. Title defects include a disagreement in the record regarding the property's boundaries, easement/tax liens/easements on the land, forged signatures, claims by ex-spouses, and recording errors. These title defects may remain undiscovered for months or even years after you purchase the home. The title search reveals the problems. However, title insurance protects your rights of ownership against these defects. If you think you don't need title insurance, think again. In 2018, title insurance policyholders filed over 730,600 claims with the American Land Title Association. The title industry spent over $615 million defending policyholders' rights and compensating their losses due to covered title defects.
Misconception # 3 There is only one type of title insurance
The two types of title insurance policies are the owner's policy and loan policy. An owner's policy protects you, the property owner, against loss or damage if there is a covered title defect in your right of ownership to the property. If you obtain a mortgage loan to purchase your home, your mortgage lender may require that you purchase a loan policy, also known as a lender's policy. This policy protects the lender's interest in the property until the mortgage loan is paid off in full. The loan policy provides no coverage to the property owner. You can opt for more enhanced coverage within your owner's policy. Standard coverage protects you against financial loss and related legal expenses for common title defects that existed before you purchased a title insurance policy. Enhanced coverage includes the standard coverage and additional protection to cover matters that may transpire after the policy's date.
Misconception # 4 Cash Sales Do Not Require Title Insurance
An all-cash purchase eliminates the requirement of a mortgage loan and reduces the need for lender's title insurance. However, an all-cash transaction does not eliminate the risk posed by unknown title defects. An owner's policy protects you against possible loss or damage from a covered title defect.
Misconception # 5 Title insurance is too expensive
The one-time premium for an owner's title policy is based on your home's purchase price and accounts for only a small percentage of your closing costs. Coverage will be in place for as long as you and your heirs own the property. When you add up the benefits compared to the costs, an owner's title insurance policy is quite reasonable. Unlike most insurance policies, there is no monthly or annual premium. Title insurance is a one-time cost you pay at closing when you purchase or refinance the real property.
Misconception # 6 You get the same protection from homeowner's and title insurance
Title insurance protects a buyer's right to ownership and a lender's investment. On the other hand, homeowner's insurance is a policy that protects you against potential losses or damage you can experience to the structure of your home or its contents during an insurable incident.
Misconception # 7 Homebuyers are not able to choose their title company
Under the terms of the Real Estate Settlement Procedures Act (RESPA), the buyer has the right to choose the title company. Generally, the property seller will not require the buyer to purchase title insurance from any specific title company unless it has been instructed that the seller will pay for the owners' and lenders' policies associated with the real estate transaction.
With so many misconceptions about title insurance, finding a team of professionals that you can trust is imperative. At Homestead Title, we are committed to providing quality service and being there for you if your property rights are threatened. To learn more about title insurance, contact us today.