Title insurance provides protection against the risk of losing ownership of a real estate property. Protection insurance differs from other types of insurance, such as real estate, life, and health insurance. It covers events that have already happened but have not yet manifested, unlike other insurances, which provide coverage for future events. Sounds confusing and too complicated? We are here to find out — read the article about who pays title insurance, what it is, and why you need it.

And once again, about what is title insurance

Title insurance is a policy that covers claims by third parties regarding property. But we are talking about unique claims. Those that were not included in the initial inspection, which occurred shortly before the transaction's closing, arose after the closing. Okay, who's the third person? Anyone other than the property owner. For example, a construction company still needs to receive money from the previous owner. Another possibility is that problems with ownership may arise after years of owning real estate. Suddenly, there is an unanticipated and completely unexpected heir to the house, whom the previous owner did not even suspect was out there.

How to protect yourself?

To avoid unpleasant situations, the lender will order a title search in the title company before closing a mortgage loan. Experts will search public records that are related to your property. And they will try to identify any documents related to the ownership of the lender or the buyer. These include divorce decisions, lawsuits, tax returns, and so on.
  • Liens. This can be enforced by a contractor, a tax agency, or a creditor who has not received payment.
  • Easements or someone else's right to use your property, even if you are the legal owner.
  • Financial encumbrances.

What does title insurance cover?

These are significant ownership concerns that might have gone unnoticed before purchasing a house. For example:
  • Errors in real estate inspection
  • Errors in the deed of ownership
  • Building code violations
  • Ex-spouse claims
  • Fake Documents
  • Deposits from tax authorities or previous creditors

Let's go through some points in more detail:

  • Falsified documentation. Although it can be hard to grasp, some individuals fabricate fraudulent documents, including title chains. This complicates the buying process as the rightful owner of the property has yet to be discovered.
  • Occasionally, there may be a situation where an undisclosed heir or will is found. When this happens, it immediately jeopardizes your ownership.
  • Public record errors. Be careful when viewing the act — clerical or registration errors can affect the document's validity.
  • Pledges on property. A property with an outstanding lien can be used as collateral to pay off the previous owner's outstanding debt.
  • Building codes violated. Titles can sometimes be affected by unresolved building code violations.
It's important to know that title insurance doesn't cover issues that may occur after buying a property. Title insurance is a form of insurance that could affect your decision to buy a house — if you knew about them in advance.

Lender's Title Insurance vs. Owner's Title Insurance

Lender's Title Insurance — this policy type protects the company's financial interests that issue the mortgage. Lender title insurance is needed whenever you take out a mortgage — even for refinancing. As you pay off your mortgage, the lender's insurance coverage decreases accordingly. Owner's title insurance — this policy already protects the home buyer and is not mandatory. Typically, the coverage amount for a home insurance policy equals the purchase price of the house. This type of policy is only purchased once.

How does title insurance work?

An insurance policy can cover the costs of a previously outstanding mortgage or protect against a lawsuit filed by a sudden claimant to the property. Also, such insurance can compensate a new owner who bought a house from a fraudulent seller. Unfortunately, situations are different. Regarding creditor insurance, title insurance helps to recover payments that the creditor has expected from you. For example, if you lost property because you bought a house from a scammer. Also, the lender can recover their losses from the house sale.

Who pays for title insurance?

Here it is, the answer to the most important question! Because no one wants to pay for something they don't need.

Who pays for creditor title insurance?

The home buyer pays the lender's title insurance as part of the cost of closing the deal. This is logical because you are borrowing money, and the lender wants to protect themselves from unforeseen situations. Even the most incredible ones. Title insurance gives the lender a guarantee that no one can take the house away from him - including the sudden appearance of an heir.

Who pays for owner title insurance?

Here things are much more enjoyable. The responsibility for purchasing title insurance depends on the state where you buy your home. Sometimes, the seller is required to purchase a title insurance policy for the buyer.

Do you need title insurance?

In order to secure a mortgage loan, you will need to obtain lender title insurance. This requirement will vary from lender to lender, but you can usually find a title insurance company that will provide this service for a reasonable price. Regarding owner title insurance, the choice is almost always yours. But remember that title insurance protects you from potential problems arising after buying a home. After all, no one can predict the future. Therefore, it is better to be able to get protection and guarantees. In addition, title insurance protects the owner from unexpected expenses, such as mortgage debt, unpaid taxes, or debt to contractors.

Conclusion

Imagine you have bought a house and live happily ever after. Suddenly, there is a new heir to the real estate! Title insurance is a solution to alleviate any unnecessary stress. It's up to your discretion whether or not to opt for it, but why add more worry? If you have questions about obtaining a mortgage, closing a deal, or refinancing real estate, we are ready to answer them. Schedule a consultation with LBC Mortgage to ensure your home purchase goes smoothly and smoothly.