With everything that goes into a real estate transaction, you want to make sure the property is free and clear of any encumbrances from previous owners. The last thing you want to do is buy a home that has liens or judgments against it without knowing about it. Before closing, a professional who performs title searches, will research the property to make sure there are no outstanding encumbrances such as liens, unpaid taxes or judgments.
Every state in the United States (Iowa is the exception with state funded coverage) requires a buyer to purchase title insurance. Title insurance protects the buyer from issues stemming from the title transference from previous owners.
There are situations where even though a thorough title search is performed, errors can happen. There may search errors, oversights, document forgery, document omissions, and sometimes snags can be a result of incomplete public records. There may be undisclosed heirs that surface later. When situations arise when the title is not free and clear, they are usually taken care of before closing. If situations appear after the closing and you have already moved in, title insurance can protect you.
The two types of title insurance policies you should be aware of are:
Owners Policy
This policy will protect the homeowner for as long as they own the home. If there is any equity that is not covered in the Lender’s Policy, it will most likely be covered in the Owner’s Policy. If a title issue comes to surface and is covered by the Owner’s Policy, the homeowner will usually be covered both monetarily and legally.
Lender’s Policy
A Lender’s Policy is required by lenders in order to close the loan. If any title encumbrances surface after the new homeowner takes possession, this policy will protect the lender’s interest. It covers the new homeowners mortgage amount. This is a one time only purchase at closing.
Be proactive and research costs since title insurance will vary. If you refinance, title insurance will be required again since the process is similar to when first purchasing the home without actually finding a new property. Be in the know before so you are protected in the end!
Written by Laura S. Rossinow, Broker, SRES, Keller Williams Realty