What is the purpose of title insurance?
When you get title insurance, you’re primarily paying for a title company investigation to ensure that the deed is clear – that the existing owner has the right to sell the property and that it is free of liens, claims, and other encumbrances. Although a trustworthy title company will compensate you if it turns out that the deed has an unforeseen flaw, their primary goal is to ensure that this never happens – after all, that’s what you’re paying them to do.
In addition to checking for clear title and liens against the property, title insurance also looks for a variety of additional issues that could affect the buyer’s rights to the property, such as easements, use restrictions or covenants, registration errors, and judgements against the property.
One thing to keep in mind with title insurance is that, while you, the homebuyer, are paying for it, it actually protects your lender. It safeguards lenders’ interests, which is why they require it before providing a mortgage or refinancing an existing one. As a result, if there is a problem with the deed, their financial investment is still safeguarded.
When refinancing an existing mortgage, the title firm looks for any liens or encumbrances that have accumulated since the original purchase, such as a home equity loan, a tax lien, or a divorce settlement, for example.
The Significance of Homebuyer’s Insurance
Lender’s insurance only covers the remaining mortgage debt payable to the lender. If you want to be protected as a buyer, you should purchase homebuyer’s insurance, which covers you as well. It’s a fantastic item to have because the additional fee isn’t too high. This is generally paid for by the seller in some parts of the country; in other places, it is considered the buyer’s responsibility if he or she wants it.
There are several situations, however, that basic homebuyer’s insurance does not cover. For starters, ordinary title insurance only covers unknown claims made before to the sale; it does not cover claims made after the sale, such as if a subcontractor makes a claim against your newly constructed home after the purchase date.
To protect yourself against such occurrences, you can get Homeowner’s Policy of Title Insurance, which covers difficulties that may develop after the purchase. These include things like previous owner zoning or construction permit violations, fraudulent liens filed against the property, a neighbor building on your land or otherwise using it for their own use, and other scenarios that would be missed by a title search.