Sometimes it's hard for new homebuyers to understand why they might need title insurance.
They know they need homeowner's insurance. They know they need car insurance...but title insurance? Geez. What could go wrong?
You pay your taxes and obey the speed limits (most of the time). Why would you ever need car insurance?
Ditto for homeowner's insurance. You take good care of your home. Why would you want ever choose to buy homeowner's insurance?
Most of the time, the answer is, "To protect you from someone else!"
Insurance is about protection, and that's exactly what title insurance does.
How Title Insurance Protects
For example, imagine buying your home and then discovering the past owner hadn't paid property taxes for 3 years! Guess who has to pay those back taxes? The current owner.
That's why, before closing on your new home, a title search is performed to make sure you have a "clear title."
Many times, we can find these errors before the new homeowner takes possession, and we get them resolved.
But we can't clear what we can't see. For example, a forgery, fraud and negligence.
These are criminal activities which cause a title to become "defective."
Once these errors have been identified, you could spend a substantial some of money in legal defense or even lose your home.
Here's a short list of some of the real estate legal problems that have come up over the years:
- Someone sold a home without getting the signature of an estranged spouse. Now the spouse wants to stake a claim.
- Previous owner didn't pay a contractor for work performed. The company places a lien against your property.
- Power company shows up to put an easement through your new backyard.
It's difficult for anyone to track down every single possibility of misdoing because the possibilities are endless.
How Title Insurance Works
Lenders require that the buyer purchase title insurance for them, not you. They want to protect their investment.
If a legal issue arrives, a lender's title insurance policy will only cover the outstanding balance of the mortgage loan at the time the claim arises.
In other words, your mortgage will be paid off. However, you get absolutely nothing for the payments you've already made on the property.
And yes, that means you've lost your down payment, too.
It's up to you to protect yourself. That's why there are title insurance owner policies. A standard policy generally covers up to the purchase price.
However, if you want to cover the cost of inflation, you can add an inflation rider or enhanced policy.
This rider will cover liens that are filed after you take ownership. For example, a subcontractor who previously worked on the home files a mechanic's lien.
With an enhanced policy, your title insurance will cover it.
How Likely are You to Use Your Title Insurance Policy?
You don't ever want to have to use it. However, you do want peace of mind should the need arise.
Enjoy your new home. You've worked hard to get it. You'll have many things that will keep you up at night over the years.
But with title insurance, the possibility of a real estate legal challenge and losing your home won't be one of them.
Lilly Title and Settlement is a woman-owned title and settlement company serving Staunton, Waynesboro, and Augusta County. If you have questions about the best title insurance policy for your new home, call us! We'd be delighted to guide you in selecting the plan that's right for you.