Title Insurance is a must when buying a home !
The turmoil in the residential real estate industry and the recent meltdown in the foreclosure process should have every home buyer reexamine title insurance. It is critical these days. Title insurance is one of the largest components of closing costs in a home purchase or refinance. Having a basic understanding of title insurance and knowing the right questions to ask can reduce a borrower's risk and save hundreds or even thousands of dollars in closing costs.
Title insurance is intended to protect the insured from risks associated with defects in the ownership of the property. These defects can result in total losses such as in the case of a defective foreclosure, forgery or impersonation, where no title is legally conveyed. Other defects can be partial in nature, such as where a neighbor's garage or fence encroaches on the insured person's property. In those cases, title insurance might pay for the removal or relocation of the encroachments.
Two basic levels of title insurance are available from most companies. The standard policy covers risks prior to the settlement date. The enhanced policy covers risks existing before and after settlement. The enhanced policy also covers a broader range of risks. Although they cost more, the enhanced polices are well worth the investment.
Before title insurers agree to issue a policy, they conduct an extensive search of the property's owners over the past 60 years. This is called the "chain of title." The title examiner checks to make sure that the chain of title is unbroken, meaning that each seller's ownership is evidenced by a deed or other documents showing how that seller obtained the ownership. They also consult other official records such as court judgments, bankruptcies, divorces, probate matters, tax sale foreclosures, water and sewer accounts (which are liens). They look at a current survey to review the property's boundaries, to see whether any neighboring properties encroach on the property. A survey shows where public or private easements, such as power lines, may exist. They also look at front, side and back setback requirements.
There are two types of title insurance policies: owner's title insurance, which only covers the homeowner, and lender's title insurance, which only covers the lender. Owner's title insurance is optional in all transactions; there is no law or lender requirement that you purchase coverage. Premiums for the owner's policy are based on the home's purchase price. Unlike most other types of insurance, for a title policy you pay a one-time premium at the time of your home purchase. Coverage continues as long as you own the home.
All lenders require a lender's title policy to protect their financial interest in the property. An owner receives no benefit from the lender's policy even though he pays for it. Lender's coverage costs.
Title insurance is a significant part of total closing costs in both purchase and refinance transactions. It is useful to explore whether you may be entitled to any discounts such as "reissue" or "substitution" rates.
Buying the most comprehensive owner's title policy available is sound advice. But buy it at the right price. Asking questions can save money the next time you buy or refinance a home.