A lot goes into purchasing a piece of real estate and ensuring that the title to the property is free and clear of any encumbrances. Yet, despite best efforts, every transaction still poses risks for the buyer. Why? Because once you become the rightful owner, anything attached to the title becomes your dilemma.
Title insurance can offer protection in these instances. How does it work? What does title insurance cover? Let's take a closer look.
What is Title Insurance?
A title search is done to closely examine the title to the property before it is transferred in a sale. The idea is to ensure that no judgments, liens, outstanding taxes, current lawsuits or bankruptcies, easements, and the like are attached to the property. It also confirms that the seller has the legal authority to sell.
In every way, a title search protects the buyer in the transaction giving you everything you want without anything you don't. Like, for instance, HOA fees that are past due.
After records are scoured and the title is thoroughly examined, a title insurance policy will be offered to the buyer. This gives assurance that the title is clear and, should something arise later, this policy will cover the cost of clearing it up.
There are two main types of title insurance, an owner's policy and a lender's policy.
An owner's title policy protects the new owner for as long as they have an interest in the property. The lender's policy protects the lender, reducing their risk in providing the mortgage. This policy remains in place until the note is satisfied. Both require only a one-time premium to be paid at closing.
What Does Title Insurance Cover?
Title insurance protects the owner and the lender from a catastrophic financial loss. Any financial or legal claim against the property will be handled by the title insurance company. While each policy will vary in what issues it will and will not cover, below is an overview of what you can expect to be included.
Title Defects
Any issues with the title that were not discovered during the title search are typically covered by title insurance. This includes liens, judgments, erroneously recorded documents, and so forth.
Some title defects can cost you to have them removed from the title, such as having to pay off judgments and liens. And some can significantly impact your ownership rights.
Should any of these title defects come to light while you have title to the property, your title insurance policy will address them.
Easements and Encroachments
An easement is when someone else has been granted the right to use or access your property. Depending on the situation, it could limit your ability to fully use it. For example, you could find that your local power company has rights to your property through an easement, restricting you from building an in-ground pool in your backyard.
Encroachments are when a neighbor's building or feature extends over into your property legally.
Each of these things should appear in a title search. But if they don't, title insurance can help clear them up so that you have full ownership rights to use your property as you wish.
Forgery and Fraud
Sometimes fraud and forgery can be caught before the closing. However, sometimes they are not, especially since the person committing the act never intends to be caught. In this instance, your title insurance policy will protect you from financial loss.
The key is to remember that the coverage of title insurance policies can vary. Be sure to discuss your options with your title company so that you get the most protection from your policy.
Post Oak Title is a full-service Houston title company providing title and real estate settlement services for both residential and commercial transactions throughout Texas.
