Over the last few months, this blog has discussed several key aspects of the real estate closing process that are important for both buyers and sellers to understand. One question which is sure to arise during the closing process is “Do you want to purchase title insurance?”
Most people have no idea what title insurance is or if it is even necessary or worthwhile to get it. Usually, title insurance is purchased at the same time as the real estate it covers and is designed to insure the purchaser against certain defects in the title to the property. One of the most common title defects arises from a seller claiming to have marketable title (i.e. a title free from defects) in the property, but it is, in fact, owned by another person. Another common defect is the failure to disclose an easement or other encumbrance on the property.
Generally, if the purchaser obtains a mortgage as part of the sale, the lender will often require that the buyer obtain title insurance. However, if the lender does not require the purchaser to get title insurance, he or she is left to determine whether or not it’s a good idea to do so anyway.
It is important to note that, as an alternative to obtaining title insurance, the buyer can retain an attorney or title expert to search property and court records to determine what, if any, issues there are with the title to the property. Presumably, if nothing turns up, the buyer may assume that the property has a clear title, however, if an issue comes up later, the purchaser may be stuck with a property that has a defective title.
What Does Title Insurance Protect Against?
The following are some of the things a normal title insurance policy will insure against:
- Documents executed under false, revoked or expired powers of attorney.
- Improperly recorded legal documents.
- Prescriptive rights, such as easements, not appearing in property records.
- Gaps in the chain of title.
- Inadequate legal descriptions.
- Errors in tax records.
- Failure to include necessary parties to certain judicial proceedings.
- Forged deeds, mortgages, and other instruments.
Tertiary Benefits To Title Insurance
Generally, as part of the title search conducted by the insurer, the purchaser of title insurance will be provided with a certificate of occupancy that states what the property may be legally used for. Further, a title reports will reveal any liens or judgments that have been levied on the property, including tax, mechanics, and utility lien.
What Does Title Insurance Cost?
The cost of title insurance will vary by state, company, and type of policy coverage. Generally, the cost of title insurance should be around 0.5% of the purchase price of the property it covers. For example, a title insurance policy for a $100,000 home should cost about $500.
If you have questions regarding the closing process, title insurance, or need additional information about real estate transactions, contact the experienced real estate attorneys at The Slater Firm, Ltd. today.