Last time around, we discussed the critical importance of a home inspection when you’re getting ready to make a real estate purchase. When you get to the closing, you’ll see “Title Insurance” in the closing costs. Let’s explore why this coverage is so important.
What is title insurance?
Your home inspection shows you visible, physical flaws in the property you wish to buy. Homeowners insurance will cover you for fire, flood, and other damage that occurs while you own the house. Title insurance protects you from a wide range of hidden risks that can threaten your claim to clear ownership after closing—even render your purchase void or invalid. Here are just a few examples:
- The most common risks to title are liens. If after closing you learn that your seller owes money to a contractor or condo association, owes back property taxes, or is otherwise in arrears, title insurance protects you from financial obligation.
- A plot survey reveals that a neighbor’s home improvement project (such as an addition, outbuilding, or pool) has crossed into your property.
- There may be challenge to an easement
- Even many years down the line, an heir to the seller may challenge the seller’s right to have sold the property.
- Then there are clerical mix-ups, probate matters, missing or “defective” documents, and other types of claims that can surface from out of nowhere.
Is title insurance required?
No and yes. There are two types of title insurance policy:
- An owner’s policy insures you, as the owner, against the types of claims outlined in its coverage description for as long as you or any heirs own the property. Neither Florida nor Alabama law require this coverage.
- A lender’s policy protects the lender for the term of your mortgage. Not surprisingly, your mortgage lender will make this insurance a condition of your loan.
While owner’s title insurance is not mandatory, buying it makes a world of sense. As a percentage of your purchase price, the cost of title insurance is incredibly low. And unlike home, auto, or life insurance, you’ll make only one payment (which you can finance along with your other closing costs) and you’re protected forever.
One important note:
Title insurance policies are generally very comprehensive in the risks they cover. However, certain events may not be covered, and like any insurance there are benefit limits. An experienced real estate lawyer can explain your coverage as you prepare for the closing.
If there’s ever a challenge to your clear title, the cost of title insurance is really a tiny fraction of the legal costs you’d otherwise have to pay out-of-pocket (it’s also pocket change for protection from potential foreclosure). Pen Air’s mortgage specialists can tell you everything you need to know about all your closing costs—AND help you secure a mortgage that works for your budget.