Like any legal transaction, buying a home can be complicated. Thankfully, your real estate agent can help you navigate the ins and outs of the home buying process. Educating yourself can also help simplify the process. Title insurance is an important concept to be aware of. Here is what you need to know.
What Is Title Insurance?
Title insurance provides protection for both you (the buyer) and your lender against any unforeseen issues with the home's title. Just as a vehicle has a title that must be transferred to the new owner when it is sold, so does a house. While most titles are "free and clear," meaning there are no liens or competing interests in the property, problems do arise on occasion.
What Does A Title Insurance Service Do?
A title insurance company researches the legal records to make sure there aren't any problems with the title. Some problems are minor, such as when the legal description of the property contains errors like the incorrect address.
Some problems are more substantial. This can include things like the presence of a legal heir to the property, a tax lien being on the property, or the house being in foreclosure so that the seller cannot legally sell it. The title company is responsible for making sure there are no conditions that prohibit the owner from legally selling the home and transferring the title to you.
Once the title company determines a title is free and clear, they or someone they contract with will issue you two insurance policies. These policies will protect you and the lender in the rare event that the title company failed to catch an issue with the title and litigation results. The insurance company then becomes responsible for any costs associated with resolving the title issue. This includes legal representation and other associated costs and fees.
Are Title Insurance Rates Regulated?
Most states regulate the cost a title insurance service can charge customers. However, some states do not, such as Illinois, Georgia, and Massachusetts. If you reside in a state that does not regulate the fees, be sure to comparison shop before choosing a title service and insurance company.
If you purchase both your title insurance policy and the lender's title insurance policy from the same company, you may receive a substantial discount over going with two different companies. Your real estate agent can usually provide recommendations for reputable companies.