Title Insurance: Busting the Myths
Title insurance has at least one thing in common with other types of insurance: It protects the policy holder from financial ruin. It is generally a kind of guarantee for a home buyer. Required title insurance protects the lender up to the amount of the loan. An owner’s title policy, however, often is written to protect the buyer up to the full value of the property. In many states, the owner’s title policy is provided and paid for by the seller.
Most of the cost associated with title insurance is directly attributable to comprehensive research, and you pay for the assurance that there is “clear title” up to the issuance date of the policy. Title insurance does not protect against disputes that might arise in the future. Once a title policy has been issued, it is more or less clear sailing until the next time a property is sold. At that time, in effect, existing research and property history is reaffirmed and updated to assure that during your ownership term no new encroachments or irregularities will cause problems for a subsequent owner.
There are however, some Questions About Title Insurance which you should know. Here’s the truth about some widespread misconceptions:
Title Insurance Is Expensive
Actually, it’s quite reasonable; every mortgage lender requires a title policy to protect its financial standing up to the amount of the loan. An owner’s title policy is separate and protects buyers up to the full value of the property. It can often be purchased as an “add on” to the lender’s policy, with a cost that is very reasonable. As a general rule, expect title insurance to cost about one percent of the purchase price, or no more than four percent of total closing costs.
I Have No Choice of Title Insurance Company
The truth is, you have every right to choose your title company, and that right is protected by federal law. However, in practice, the choice of title company often depends upon who is paying for the title policy. Ask your real estate professional or attorney for advice, but do remember that you always have a choice, even if you choose not to exercise it.
Title Insurance Never Expires
In effect, title insurance “expires” the day the policy is written. Prior to issuance, a title company thoroughly validates all previous ownership records on the property, and attempts to assure that there are no liens, financial claims or boundary disputes. The policy itself only insures against financial loss stemming from irregularities and occurrences prior to the issuance date. It is, however, vital to protect your lender’s interest (and yours) against unregistered ownership disputes, fraudulent signatures and historical claims. On older property, or in rural areas where “handshake” transactions were the norm, such disputes are not uncommon.
Title Insurance Covers All Possible Property Problems
Though many people believe title insurance covers all property problems, it does not normally deal with unrecorded easements, water rights, unresolved or unintentional encroachment issues and several other possibilities. In some cases, survey markers are disturbed, streets are widened or removed, and utility lines are relocated. Landmarks disappear. Fences rot, land erodes, and dirt roads are abandoned. All too commonly, a neighbor’s fence is incorrectly sited an inch or two over the property line or other “friendly” mistakes occur that become problematic only when it is time to sell. It pays to be wary.
In some areas, an expanded coverage policy will protect owners against false claims that arise after closing. This expanded coverage can be valuable for buyers of new homes, if there are zoning discrepancies, or for cases of identity theft and fraud.