You may be aware that there is such a thing a Title Insurance. However, if you have never purchased property you may not know what it covers. Even during the process of purchasing a home, buyers may decline an Owner’s Tittle Insurance property because they think it’s one of those insurance policies that never get used. Yet, facts tell us that title insurance is used often. According to industry statistics, title insurance claim pay-outs can exceed $1B per year.
What is Title Insurance?
In the simplest terms, title insurance is protection against a broad array of issues that can threaten your ownership of your property or issues that can create liability for problems that happened before you purchased the property.
There are two types of title insurance policies. There is a lender’s policy which most banks and mortgage companies will require as part of your loan. The lender will require title insurance that protects their interest in your property up to the amount of the loan. However, the lender’s title insurance will not cover many issues that covered by the lesser known owner’s title insurance policy. These policies address the homeowner’s liability and exceed the loan amount up to the full value of the property.
While policies and coverage can vary (be sure to shop around), title insurance for owners commonly covers: forgery and impersonation, undisclosed (but recorded) prior mortgage or lien, undisclosed (but recorded) easement or use restriction, erroneous or inadequate legal descriptions or surveys, lack of a right of access, silent (off-record) liens, pre-existing violations of subdivision laws, zoning ordinances or building permits, and more.
To fully appreciate the value of a title insurance, let’s review a few examples of claims paid that have been shared by insurance providers and claimants:
Surprise Liens and Mortgages
There was a short period of time in between the title search and the actual closing on a home. In the gap, three sizeable mortgages were registered against the property. These mortgages were valid and properly registered as public record. The seller never disclosed them and the closing proceeded as schedule.
After the closing, the new owners found themselves under foreclosure proceedings with the three unknown mortgages. Fortunately, the buyers did purchase owner’s title insurance which covered over $320,000 in liability and damages and also handled all legal proceedings.
Property Line Issues Between Neighbors
A gentleman, let’s call him Tom, purchased a new home with a separate garage on his property. Shortly after moving in, he started up his Harley Davidson motorcycle for an early morning ride. Startled by the proximity of the sound to his bedroom, Tom’s neighbor, John checked his survey and discovered that the previous owner of Tom’s house had built the garage 2 feet onto John’s property.
Tom was in a quandary thinking his only options were to either demolish the garage or relocate it. Checking his paperwork from the closing, he remembered he had purchased an owner’s title insurance policy and called his insurer.
Many title insurance companies have specialist on staff who are experts in negotiating property issues between neighbors. Acting as a third party, the insurance company tackles uses mediation strategies with the hopes of reaching a win-win solution and preserving the relationship between neighbors.
Tom’s insurance company was able to secure an official lot adjustment to keep the garage where it was while also covering the cost of soundproofing the garage. This sufficiently muted the sound of the motorcycle revving up and avoided ongoing or costly litigation. Importantly, it also removed tension between the neighbors and allowed them both to enjoy their homes.
Shortly after closing on a residential home, the buyer and now homeowner received a water bill from the municipality for thousands of dollars. Panicked, the homeowner contacted their owner’s title insurer and reported the situation.
The insurer discovered that the municipality had not received a water bill payment for that property for several years. Rather than shut off the water, the municipality had allowed the account to accrue a past-due balance which was triggered by the change in ownership. The title insurer settled the property’s account with the municipality relieving the new owner from the liability of the past-due balance.
Protect Your Investment
There are thousands of more examples of claims resolved and favorably settled by title insurance companies. Hundreds of millions of dollars are paid each year on legitimate claims for identify theft, easement disputes, access road issues, liens, and more. If you are considering purchasing a home, be sure that in addition to protecting your lender, you also purchase an owner’s title insurance policy to protect your interests.