The title is an important document that authorizes the legal owner of a particular property. It is a form of insurance that is mandatory for homeowners in all refinance and purchase transactions and also for lenders. Title insurance safeguards both homeowners and lenders against past defects or issues related to legal ownership of the property. This involves things such as forged documents, unsolved easements, lien claims, ownership claims, or mistakes done by the previous title company. Unlike other types of insurance, title insurance safeguards the homeowners (borrowers) and lenders from issues that occurred in the previous days instead of new problems that will arise in the future. Title insurance will safeguard you and the mortgage lender from the financial losses occurring from legal charges when an issue increases with a home’s title. Hence, it is key that you associate with an experienced title insurance agent who can guide you properly on owner’s title insurance and title insurance for the lender.
Types of title insurance:
There are two kinds of title insurance policies: a lender’s policy and an owner’s policy.
A lender’s policy is needed in every purchase and refinances transaction, and the borrower usually pays for it in a refinance transaction. In the case of a possible title issue, the policy safeguards only the mortgage lender in the sum of the loan.
An owner’s policy safeguards the actual buyer. Even though the laws don’t need the borrowers to purchase an owner’s policy, it is highly suggested to ensure that a homeowner of a property will be protected from any possible issues hidden in the title.
There are majorly these types of title issues that title insurance usually covers:
- Mysterious liens: These are the issues where a previous property owner has taken security on a debt that is still pending or when the previous property taxes and supporting payments are pending.
- Pendingheirs: A person who was eligible to inherit the property or an interest in it may have not got the due. But according to laws they can still have their rights to the property or part of it.
- Errors in the public records: Previous years, the record keepers may have committed a mistake in recording the title, due to which the title search in public records may have not shown the old lien.
- Fraud: This is a situation where the previous co-owner might have committed fraud and forged a signature on important documents to sell that property.
Any of the above issues will need the lender’s or owner’s title insurance policy for protection.
Importance of title insurance for the lender:
- If there is a mortgage on a property, your lender will need that you buy a lender’s title insurance policy to safeguard their interest in the property. This lender’s title insurance policy guarantees that they are safeguarded against the outstanding liens and problems arising with the property. Lenders title insurance policy will compensate the mortgage lender if they are accountable for any lawsuits against their name. Like its name, title insurance for the lender will only safeguard the lender and the title claims that only effects the lender’s loan against the owner. If you are a homeowner and another person asserts his claim of the property, then you will require your owner’s title policy to rescue you from the issues.
- Some of the lenders give loans and then sell them to secondary investors in the market. Hence, for safeguarding its security interest in the loan, you will need title insurance coverage. Even those lenders who will retain the loans on their own will need lenders’ policy to safeguard the investment against title-related problems.
- The payment for lenders’ policy on the purchase of this loan differs across various regions and also on precise contracts. But, even if the lender’s policy is purchased while you are buying the property, it will be valid only during the validity of the loan that was insured. In the case of refinancing, the old loan is paid off and a new loan is taken, then the lender will need a new title policy.
- From the time of taking the original loan, as a homeowner, you might have taken out a second trust deed on the property. There are also chances that there might be legal cases or liens recorded against you that can cause serious monetary loss to an unsecured lender. The title defects can come into the picture irrespective of the time of purchasing or refinancing the home. While you might not have any title defects as seen to the naked eye, there may be mysterious ones arising later. The only way for a lender to properly safeguard themselves is to have a lenders policy every time you purchase or refinance a property.
How much will title insurance cost?
Title insurance, both lender’s and owner’s, is a one-time payment usually attached in closing costs. The lender’s title policy is valid only during the life of the mortgage, and the owner’s title policy until you are the owner of the property. Buyers generally pay for the lender’s title insurance, but precisely who pays for the owner’s title insurance can also vary across regions. If the seller will not pay for the owner’s title insurance policy, the buyer can negotiate and divide the title insurance costs or get them included as seller concerns. Associating with an experienced title agent when you purchase a property can come in handy here to guide you through the process and tell you what’s typical in your area.
Bottom-line:
The joy of purchasing a property is infinite, but it may prove disastrous if there are any hidden defects in the title. If you want to protect your interest in the property and get all the details regarding the owner’s title policy and title insurance for the lender, associate with a title agent like Utah Title insurance company. They are experts in all the title insurance-related activities who can guide you with an accurate approach.