If you are purchasing residential or commercial real estate, you may have heard the term “title insurance” bounced around. Title insurance is very important and protects your legal claim to the title of your real estate. In other words, it provides protection in certain circumstances when someone else asserts an adverse interest in your property.
If you have title insurance, a claim can be filed anytime a title defect is discovered. Examples of title defects include missing interests, forgeries, boundary line disputes, and an array of other mistakes or errors that may be impossible to discover before you purchase the property.
There are often misconceptions about title insurance policies. Before going through the real estate closing process, a diligent purchaser should be aware of the benefits of purchasing a title insurance policy.
Misconception 1: I do not need title insurance because I will have hazard or homeowner’s insurance.
Title insurance is not the same as hazard insurance or homeowner’s insurance. Title insurance protects your legal claim to the property. If, for example, there is a prior lien and the holder of that lien attempts to foreclose, your hazard insurance will not provide coverage for such a situation. By the same token, if there is a fire on your property, your title insurance will not offer coverage for the physical damage, as title insurance and hazard insurance provide protection for different situations.
Misconception 2: I do not need title insurance because my mortgage company will have a lender policy.
While it is true that your mortgage company will require that you purchase a lender’s title insurance policy to protect their investment, that coverage does not provide the same protections as an owner’s title insurance policy. For example, if there is a boundary line dispute between you and your neighbor and you only purchased a lender’s title insurance policy, you would have no individual protection for such a dispute because you do not have your own title policy. Although the lender’s title insurance policy is in place, a lender may elect not to file a title insurance claim unless either 1) the lender is notified about the existence of a dispute; or 2) you have ceased making payments on your loan such that your lender is now seeking to foreclose on your property. In other words, there is no assurance that your lender will advocate on your behalf.
Misconception 3: Title insurance is too costly when you factor in the small risk that a title defect exists.
The cost of title insurance varies based on the type of policy and endorsements (i.e., additional protections); however, title insurance differs from other insurance, in that you will only need to pay for the policy one time – at closing. Unlike hazard insurance or other types of insurance, your title insurance policy is valid for the rest of your life, and may even provide coverage to your estate. This is one of many reasons why it is important to purchase title insurance and to retain a copy of the policy in a safe place alongside other important documents.
These are just a few of the many reasons why the purchase of an owner’s title insurance policy is a smart investment in your new real estate purchase. If you are interested in learning more, contact Vanessa S. Carter in the Commercial Real Estate practice group of Woods Rogers Vandeventer Black PLC.