Title insurance is an essential part of the real estate transaction process, but is often overlooked or dismissed. This is usually due to a lack of information — without truly understanding what it is all about.
Title insurance in real estate is crucial for protecting you from financial loss when your investment encounters title defects. Let’s take a closer look.
Understanding the Title Search
When you sign the initial sale contract with your realtor, a title search will be performed on the subject property. The idea is to ensure that it is free and clear of any potential title issues that could jeopardize your ownership rights.
Title examiners take a deep dive into the property records, looking for any defects that may pose a problem. A few common examples include:
- Easements
- Encroachments
- Unknown heirs
- Undiscovered will
- Fraud or forgery
- Judgments
- Outstanding HOA fees
- Tax liens, mechanic liens, or other liens
- Recording errors
If these title issues do arise during the search, your team of experts will work with the seller to clear them up before the closing – or as a condition of the closing. This allows the sale to proceed.
Unfortunately, it doesn’t matter how thoroughly the title is examined, it is possible for things to get missed. Therefore, as an added layer of protection, the title company will offer you a title insurance policy.
What is Title Insurance?
Title insurance is in place for when issues like the above title defects arise. This may happen right after the property changes hands or decades down the road. If someone claims they are an heir with ownership rights or if a judgment creditor wants payment, you’d simply file a claim with your title insurance company and they will handle it without you having to do anything more.
That is, of course, assuming that you bought a policy at closing.
Types of Title Insurance
There are two main types of title insurance in real estate — an owner’s title policy and a lender’s title policy.
An owner’s policy protects the new owner of the property. It is not always a required purchase, by it is very recommended. After all, with one premium payment at closing, you would be covered for as long as you or your heirs have an interest in the property.
A lender’s policy is one that the lender requires as a means of mitigating their risk. And it, too, only requires one premium payment at closing.
Taking a mortgage on a property means that a lender is handing over a large sum of money to fund the sale. With a lender’s title insurance policy in place, they can secure the spot as the first lienholder should anything go awry.
As the loan gets paid down, the value of the insurance policy will decrease. It remains in place until the mortgage is satisfied.
The Value of Title Insurance
Title insurance may seem like an insignificant additional purchase at closing. However, this one-time payment can offer you peace of mind as it protects your finances and biggest investment.
Talk to your title company and learn more about title insurance so that you can make informed decisions throughout your homebuying process.
Post Oak Title is a full-service Houston title company providing title and real estate settlement services for both residential and commercial transactions throughout Texas.
