Real Estate Law - Title Insurance -
What is a Title?
When you buy a property, the seller transfers the title into your name. A title is the legal document that gives you ownership of the property that is documented on the deed. However, it’s possible that someone else will claim they possess the rights to the home — and that’s where title insurance comes in.
What Is Title Insurance?
Title insurance provides financial protection to either homeowners or lenders from any disputes over a property due to past claims.
There are 2 types of title insurance policies. A lender’s title insurance policy and an owner’s title insurance policy:
Lender’s title insurance policy
Most if not all mortgage lenders will require borrowers to buy a lender’s title insurance policy, which protects the amount they’ve loaned from any issues with the property’s title. Lender’s title insurance policies only cover the amount in which the lender has a stake (the amount of the loan) they don’t protect the homeowner’s equity. Equity is calculated by taking the home’s value and subtracting what you still owe on your mortgage.
So, if someone has a valid claim to the property, the lender will get its money back, but you won’t be covered — unless you have owners title insurance.
Owner’s title insurance policy
An owner’s title insurance policy covers you, the homeowner. It protects your investment in the home by compensating you for any financial loss due to a title issue. If someone sues you over covered problems with the title, the insurance underwriter would be required to defend your right to the property.
Understanding How Title Insurance Works
The title company will perform a title search to confirm the legal ownership of the home, which involves examining property records and looking for issues such as outstanding mortgages, leases, or restrictions. The title company may also order a property survey, which will verify whether the home sits within its correct boundaries.
Once the company has determined that the title is valid, you’ll be issued a title insurance policy.
Who pays title insurance?
If you’re wondering who pays for title insurance, it’s typically the homebuyer — regardless of whether you’re purchasing lenders title insurance or owners title insurance. However, you may be able to negotiate with the seller about covering some of your closing costs, which include title insurance.
What does title insurance cover?
You can count on title insurance to cover:
Legal disputes over the ownership of the home.
Liens, or claims against the property that can serve as collateral to settle debts.
Erroneous, flawed or forged records.
Encroachments, or outside usage of a property without prior agreement.
Undisclosed easements, which are situations where other parties — like utility companies — have been granted the right to use the lot that the home was built on.
Unlike homeowners' insurance and other types of insurance that protect you from losses in the future, title insurance generally covers events that occurred before the policy was issued, like unpaid property taxes from a previous owner. Title insurance won’t take care of new issues that affect the title after you become the homeowner — like if you decide to stop paying your taxes.
How Much Does Title Insurance Cost?
Title Insurance is a one-time charge. Your policy will last until you sell or transfer the property to someone else.
Title Insurance is based on a promulgated rate established by the State of Florida. Click here to see promulgated rate charge.
Do You Need Title Insurance?
The best advice is to always buy an owner’s title insurance policy when purchasing property. Let the insurance company assume the risk that there is a problem with the property history because if there is one, you might not find out for many years, and the process to resolve the issue can be expensive.
If you are financing your home the lender will almost always require that you purchase a lender’s policy. If lenders require title insurance that is a good indicator that you should probably purchase an owner’s title insurance policy as well. Don’t worry, you don’t have to pay twice. You will pay for the owner’s title insurance policy and the lender’s title insurance policy can be simultaneously issued for $25.
There’s also the possibility of title fraud, which is also covered by title insurance.
Ultimately, your decision to buy or forgo owners’ title insurance will depend on your personal situation and how much financial risk you’re willing to take on. Although it’s optional, owners title insurance could end up saving you money down the line.
The Bottom Line on Title Insurance
Owners title insurance helps protect you financially from past claims against the home. While lenders title insurance is likely required if you have a mortgage, buying owners title insurance is up to you — but it’s a good idea if you want peace of mind.
Why wouldn’t you protect the biggest investment you will ever make?