Tuesday, March 17, 2015

8 Things home buyers should understand about title insurance.

1. What is title insurance?
Title insurance is a policy that protects against loss if there’s a problem with the condition of the title of the land (and residence, lot, building, etc.) that was purchased in a real estate transaction. Title insurance is a protection for you and your lender that the property is what it claims, is yours, and no one else has a claim, lien, or encumbrance. Think of it as your proof of ownership.

2. Why is title insurance necessary?
Your home will probably be the biggest investment you make in your life (along with “buying” your mortgage) so you want to make sure there are no problems with legal ownership. A title insurance policy will legally ensure you receive benefits of ownership including the right to occupy and use the property, it’s free from debts or obligations not yours, and that you’re able to sell or pledge the property as security for a loan without issue.

3. How does title insurance differ from casualty or other types of insurance?
With most other types of insurance, you pay premiums every month or year on an ongoing basis, as long as you hold the property or benefit being received. But with title insurance you pay only once – when the policy is originated and before the real estate transaction is concluded. All of the work to identify and eliminate risk with the property occurs before you assume legal ownership.

4. Why does a homeowner need a title insurance policy and a lender need its own policy?
Both the buyer and the mortgager need a title insurance policy in any real estate transaction. Two different policies mean that both interests are protected against title defects. Of course there is great overlap in interest in the property, but remember that most mortgages don’t equal the full replacement cost of the property.

5. What would title insurance do for a homeowner if there were a problem after the sale?
Most problems are identified and resolved before the transaction every closes (as title insurance is supposed to do), but in rare circumstances there are issues that arise. A homeowner’s title insurance would cover the legal cost of defending their interest in the property and resolving the matter. It would also cover indemnification against losses causes by any claims. Remember that anyone can make a claim against title or take a case to court – whether or not it’s right or justified – so it’s essential to be insured.

6. Who pays for title insurance?
It’s mostly customary for the real estate buyer to pay for their own title insurance policy in California, though in some counties the seller may split the cost. The cost of a title insurance premium is written into the closing costs of the transaction. It's usually the buyer's choice what title company they'd like to use.

7. How long does coverage last?
Your title insurance policy lasts as long as you have an interest in the property. When you pass away the title coverage automatically extends to your heirs. And if you sell the property, your title insurance policy adds a level of warranty or protection to the next buyer, like links in a strong chain.

8. What exactly is covered by title insurance?
There are several types of policies, but these are some of the basic risks covered:

Forgery and impersonation;
Lack of competency, capacity or legal authority of a party;
Deed not joined in by a necessary party (co-owner, heir, spouse, corporate officer, or business partner);
Undisclosed (but recorded) prior mortgage or lien;
Undisclosed (but recorded) easement or use restriction;
Erroneous or inadequate legal descriptions;
Lack of a right of access; and
Deed not properly recorded.
An extended coverage policy may be requested to protect against such additional defects as:
Off-record matters, such as claims for adverse possession or prescriptive easement;
Deed to land with buildings encroaching on land of another;
Incorrect survey;
Silent (off-record) liens (such as mechanics' or estate tax liens); and
Pre-existing violations of subdivision laws, zoning ordinances or CC&R's.
Subject to availability in your locale, First American's EAGLE Policy covers all of the risks listed above, plus:
Post-policy forgery;
Forced removal of improvements due to lack of building permit (subject to deductible);
Post-policy construction of improvements by a neighbor onto insured land; and
Location and dimensions of insured land (survey not required).

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