Are you trying to buy a home or a vacant lot? If so, you’ve probably been told you need to get title insurance…right? But do you really need title insurance?
Here we are going to define what is title insurance, if you need it, how much it costs, the benefits of title insurance, and other important information you need to know before making any decisions about whether you really need it.
Let’s get started.
What Is Title Insurance?
Just like any other insurance, title insurance protects you from potential losses. Title insurance protects the home’s purchaser or the mortgage company (depending on the type of policy you buy) from a variety of potential losses. More about that in a moment.
What Is the Importance of Title Insurance?
Title insurance protects the insured entity from financial loss and any legal claims due to things like title defects, undiscovered liens, or any other title issues that are covered under the policy.
So basically, title insurance protects you and your property from financial loss and legal claims. It ensures that you are in fact the owner of said property and aren’t held liable for any issues with the title that you didn’t cause. That means if someone tries to sue you for the property or for any unpaid liens against the property, etc., your title insurance policy will protect you from any negative event your policy covers.
What Issues Does a Title Insurance Policy Normally Cover?
A standard title insurance policy will normally protect the insured against defects in the title that are not discoverable when researching public records. Some of the issues covered include the following.
- Public record errors.
- Hidden or undiscovered liens, or encumbrances.
- Real estate tax liens or assessments.
- Unpaid mortgage liens.
- Easements or right of ways that limit the use of the property.
- Unmarketable titles.
- Omitted or unnamed heirs.
- Fraud, forgery, or incorrect signatures.
What Issues Are Not Covered Under Title Insurance?
Here are some of the things a title insurance policy won’t cover.
- Issues that are created after the title policy has been issued.
- Issues that are a result of you not paying your mortgage.
- Issues due to your failure to abide by the law or specific covenants.
- Zoning violations or building ordinances that are related to land improvements, land use, or any type of environmental protection issue.
- Condemned land.
- Covenants that restrict or limit the use of the property.
- Claims from other people who could have rights to the property when that property it is near or on a body of water.
What Is the Difference Between a Title Commitment and a Title Policy?
A title commitment is something you are given before the home closes and a title policy is what is issued after you have closed on your home. The title commitment is proof that your chosen title company is willing to provide you with title insurance.
Do I Really Need a Title Insurance Policy?
All lenders require homebuyers to pay for a title insurance policy as part of the mortgage process. However, in addition to paying for the lender’s title insurance policy, it is a good idea for you as a homebuyer to purchase your own as well.
If you pay cash for a home, you don’t have to purchase title insurance; however, you really should if you want to protect yourself from any number of potential legal issues that could arise. And, if you ever have to defend your title, the title insurance will cover the costs of any third-party negotiations. The title insurance will also pay for any legal fees you might incur.
Who Issues Title Insurance?
Here in Florida, depending on the terms and conditions of the contract, either the buyer or the seller hires the Title Company or an attorney and pays for the owner’s title insurance policy. A title insurance policy is issued by a Title Company or an attorney, who handles the closing. This agent will commence with the title search once the purchase contract for the property has been completed.
One of the contingencies in purchasing a property is ensuring that the home has a clear title. Having an issue with the judgments or liens will certainly derail a home purchase if the seller can’t correct the issue. This is one of the reasons why homes do not close.
What Is the Difference Between an Owner’s Policy and a Lender’s Policy?
- Owner’s Title Policy
This policy protects the new owner of the property against losses that arose prior to buying the property such as fraud, errors, or omissions. It also protects the buyer from other risks covered in their title policy.
- Lender’s Title Policy or Loan Policy
The lender’s title policy, sometimes called a loan policy, is usually purchased by the home buyer on behalf of the mortgage company. This protects the lender’s interests in the property until the mortgage has been paid in full. All lenders require a home buyer to pay for a lender’s title policy as part of the mortgage approval process.
Who Pays for Title Insurance?
In most cases, the seller pays for title insurance on behalf of the buyer. And the home buyer is required to pay for the title insurance for the lender as part of the approval process.
How Much Does Title Insurance Cost?
In Florida, what you pay for title insurance will depend on the amount you are insuring. So basically, the amount you pay for your title insurance policy will be based on the amount you are paying for the property. For example, a house that costs $100,000 would pay $5.75 per thousand in title insurance so that title insurance would be a total cost of $575. The calculated cost varies and depends on the price of the home.
The following rates are calculated and assessed per every $1,000. Please see the cost increments below.
- $0 – $100,000 = $5.75
- $100,000 – $1 million = $5.00
- $1 million – $5 million = $2.50
- $5 million – $10 million = $2.25
- $10 million – $2.00
Other expenses could include a settlement fee, land survey plus an elevation certificate, a recording fee deed, and a recording fee mortgage all of which would be an additional cost per item.
Why Does the Owner’s Title Policy Cost More Than the Lender’s Policy?
When you buy an owner’s title insurance policy and a lender’s title insurance policy together, you might be given a discount because you are buying both policies at the same time. However, if you decide not to buy the owner’s policy, you might have to pay the full price of the lender’s policy.
What Might Raise the Amount I Have to Pay for Title Insurance?
There are several reasons you might have to pay more for a title insurance policy. For example, the smaller the down payment you have, the more you will have to pay for title insurance. Or, if you have a lower credit score, that could also raise the cost of your title insurance. And lastly, the larger your loan amount, the more you will have to pay for your title insurance.
What Are the Benefits of Title Insurance?
Many people question whether title insurance is really necessary or if it’s a waste of money. Here are some of the benefits you will receive if you buy title insurance.
- You will have protection from title challenges for as long as you and your heirs own the property.
- Your title insurance will pay for attorney fees and any other expenses you might incur while defending your title for any issues covered under your policy.
- You will be protected against covered risks that include any of the title defects we mentioned above in the section entitled “What Issues Does a Title Insurance Policy Normally Cover?”
- You will also be covered from any financial liability when you sell your property and from any financial liability if the sale of your home falls through because of a covered defect in your property’s title.
- A title insurance policy also protects the mortgage lender from any financial losses from covered risks. And it ensures that there is only one mortgage lien against the property.
How Long Is a Title Insurance Policy Effective?
The owner’s title insurance policy is effective for as long as you or your heirs retain the property. The lender’s title insurance policy is only effective until the mortgage is paid in full.
Do I Have to Renew My Title Insurance Policy?
No, unlike homeowner’s insurance, you don’t have to renew your property’s title insurance policy. It is good for as long as you or your heirs own the property.
Is Title Insurance a One-Time Fee?
Title insurance is a one-time fee, so you only have to pay for it one time for each property you own. And it is good for as long as you or your heirs own the property.
Do I Need a Title Insurance Policy if I Am Refinancing?
If you are refinancing your home, you will be required by the mortgage lender to purchase a lender’s title insurance policy as part of the approval process. Lenders won’t fund a mortgage without a lender’s title insurance policy in place. Whether or not you choose to purchase an owner’s title policy at that point is up to you.
Can I Purchase a Title Insurance Policy After I Have Closed on My Property?
Yes, you can buy a title insurance policy after you have closed on your property, but it’s not a good idea. If you don’t purchase your title insurance policy until after you have closed on the property, any issues that come up after the closing and before you purchase the title policy might not be covered.
Examples of Issues That Could Arise After You Close on Your Property
Here are just a few of the issues that could arise after you close on your home. These scenarios might help convince you that purchasing title insurance is extremely important and necessary for your peace of mind if nothing else.
What if the seller of that home owed money to a contractor and a lien was put on the house and that lien wasn’t detected? A title insurance policy would have coved this issue so you wouldn’t have been responsible for that debt or risked losing your home.
What if the previous owner of that home had a child out of wedlock and that child was previously unknown to the heirs and that child then decided to make a claim? A title insurance policy would have covered this issue so you wouldn’t have lost your home.
If you bought a title insurance policy and that title company checked the public records but didn’t find any issues. Then a few years later it was discovered that someone filed a few papers wrong and went back to correct them. However, now, because of the errors, a previously undetectable issue was found, and the title could now be challenged. Your title insurance policy would cover all legal and financial liabilities and expenses.
If any previous owner (and it doesn’t necessarily have to be the person you bought the property from) owed any given contractor money, that contractor could put a lien on the property. This could happen even if you were not the one who owes money to that contractor. A title insurance policy would cover this issue, so you aren’t responsible for that debt and you don’t lose your home.
It could have been anything from roof or foundation repairs, replacing an HVAC system, or anything else really. It doesn’t matter, that contractor has the legal right to put a lien on the property if they are due money from working on your home. This is something that if you had purchased a title insurance policy that title company would cover the issue even if they were not able to previously detect it. However, if you didn’t buy title insurance, you would be responsible for paying for this debt. And if you don’t, you could ultimately lose your house.
What Happens If a Title Insurance Company Goes Out of Business?
If a title insurance company goes out of business and is declared insolvent, there is a state guarantee association and an associated guaranty fund that kicks in. The state guarantee association will then transfer the insurer’s title insurance policy to another insurance company if one is available or it might continue to provide the title insurance policy coverage itself.
If you want information about buying a home or you just have a few questions about the process first, please Contact Lakeland Real Estate Group. We have been helping buyers for more than 20 years and we will do everything in our power to make the purchase of your new home a seamless stress-free experience.
About the author: The above real estate article “Do You Really Need Title Insurance?” was written by Petra Norris of Lakeland Real Estate Group, Inc. With over 20 years of combined experience in selling or buying, we would love to share our knowledge and expertise. Petra can be reached via email at firstname.lastname@example.org or by phone at 863-712-4207