What is Title Insurance and Is it Necessary?

One of the most important components of due diligence, title insurance protects the buyer from any defect in the chain of the title, including unknown liens or mortgages owned, errors in legal information, and unsure land ownership.

Therefore, a one-time title insurance fee covers steep administrative fees for deep title data searches and protects against the claim for past occurrences.

What is Title Insurance?

Title insurance is the protection tool of real estate lenders and buyers against any financial loss sustained from title defects.

Simply, it’s the detection of third-party claims on property rights that may arise after a real estate closing. 

The most common type of title insurance is Lender’s Title Insurance, which the borrower purchases to protect the amount of lender. This ensures that the land you are buying is free from all the issues so that the lender can issue a mortgage loan.

The other type of title insurance is Owner’s Title Insurance. It protects the homeowner if someone else has the rights to the property.  Although owner’s title insurance is optional, real estate advisors strongly recommend it for proficient deals. 

Why Title Insurance is Necessary?

Sometimes, there are several issues concerned with the property and as a potential buyer, you cannot determine them. There’s even a risk of losing the equity and the right to live if a serious issue is raised after purchasing. 

When you have served under a title insurance company, they may be responsible for clearing the issue and paying specified legal damages, according to the policy.

Thus, the title insurance company searches the title thoroughly and verify public records related to the property. It finds out any title defects; easements, liens, or encumbrances that could affect the buyer’s or lender’s property rights.

Easements

It is a legal situation of a property when the title remains with the owner, but a third-party or organizations hold the right to use the property for a distinct purpose. For example, the property may have an easement and thus can be legally used as private roads and paths, utility lines, and water draining purposes. 

Liens

A constructor, lender, or tax authority that hasn’t paid been paid can place a lien on the property. It is a legal claim that allows the lien holder to access the property rights if all the debts are not paid. Hence, it is necessary to verify the liens on a property to avoid previous owners’ unpaid bills.

Encumbrances

It is a third-party financial or non-financial claim on the property that covers a wide range of risks to the buyer. Encumbrances include easements, liens as well as zoning laws, restrictions by creditors or the government. 

How Much Title Insurance Cost in 2021?

The one-time title insurance premium is paid at closing. Depending on the value of the property, location of the area, and insurer from which you buy your coverage, the cost of title insurance may range from $300 to $2000. 

On average, owners title insurance costs $850, and lender’s title insurance costs $550 but it may differ according to the discussed factors. You will need to contact the insurer and get quotes to see how much you need to pay for title insurance.

Concisely, Title insurance is not an expensive recurring cost but paid one-time at closing. After you have done title insurance of your property, it stays valid as long as you own the rights of the property.

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