What is Title Insurance? What Does it Cover?
Congrats on getting your offer accepted! At this point, you kick off the closing process. Part of this process is a title company researching whether or not your new home has a “clean title”. Having a clean title means there is nobody else who has a claim to the property. This is where the importance of having title insurance comes into play.
What is title insurance?
Title insurance is a one-time cost that protects you for the life of your loan from the actions of previous owners of the property as well as those who may try to claim the property after the sale. Like all insurance, it is better to have it and not need it than to need it and not have it. After the title company performs the title search process and determines that the property is insurable, the title company will issue an insurance policy to the buyer and the lender.
What does title insurance cover?
Title insurance covers defects including, but not limited to:
- Undisclosed heirs
- Paperwork submitted under a false power of attorney
- Prescriptive rights – giving someone other than the property owner rights to use the land, not appearing on record and not disclosed by survey.
- False representation of the true landowner
- Improperly recorded legal documents
- Expired or improper notarization of acknowledgments- if the notary is found to have an expired notarization commission.
- Failure to include all parties to certain judicial proceedings
- Forged conveyance paperwork like mortgages, the satisfaction of mortgages, wills, deeds
- Gaps in the chain of title
- Deeds by minors
- Inadequate legal descriptions
- Issues with conveyances by undisclosed divorced spouses
- Conveyances by an heir or survivor of a joint estate who attempts to attain title by ill-gotten means
- Wills or deeds by parties without legal rights
- State inheritance and gift tax liens
- Problems with rightful possession of the land
- Demolition and substandard building liens
- Errors in tax records
- Deeds or mortgages by foreigners without legal rights to hold title
- Administration of estates or probate of wills of missing persons who are presumed deceased
- Rights of divorced parties
- Improper modification of documents
- Misinterpretation of wills and ancillary instruments
- Violations of public policy
- Claims by creditors of decedent against property
- Real estate homestead exemptions
- Forfeitures of property due to criminal acts
- Issues affecting rights of military personnel protected by the Soldiers’ and Sailors’ Civil Relief Act
- Interests arising by deeds of fictitious parties
- Issues concerning adopted children
- Utility easements
- Community property issues
- False affidavits of death or heirship
- Federal estate and gift tax liens
Here are some examples of what title insurance doesn’t cover:
- Failure to pay your mortgage is not covered.
- Discovery of radon, mold, or termites in the home after the purchase has closed – if you wait to test for known issues like radon, mold, or termites before the purchase closes and it is found afterward, it is not covered.
- Violation of zoning or building ordinances related to land use, improvements, or environmental protection.
- Discovery of problems with taxes and assessments.
- Discovery of restrictive covenants that limit the use of the property – if the previous owner had any restrictive covenants with a neighbor, the city, or county and you find out after the purchase closes, it is not covered.
- Discovery that the home is on condemned land.
These example lists are provided by Redfin.
What does title insurance cost?
Title insurance costs depend on the location (state, county, and city) and its purchase price. It typically ranges from $500 to $3,500. Your loan officer will have a close estimate of what title insurance will cost in your loan estimate. Just like with a loan, it is worth it to shop around to find the best deal on title insurance.
Is title insurance required?
It is not a requirement to have title insurance in order for a real estate transaction to go through. However, lenders usually require a buyer to get title insurance to protect themselves and the buyer in case a problem is found with the title.
While you can buy title insurance at any time, it can take up to two weeks to issue a policy. If anything goes wrong before the policy is issued and activated, you will have to deal with it.