Understanding the Basics of Title Insurance

Purchasing a home, especially the first time, is an overwhelming process. It could take months for your head to clear from signing endless mountains of paperwork, making sure that you had your finances in order and pouring through countless dwellings during your quest for your dream home. Now that your offer has been accepted and the closing date is now in sight, the last thing on your mind is insuring the deed to your home.

What is it and why do I need it?

Title insurance serves to protect both the buyer and seller against financial losses from defects in the title or liens against the property. If institutional financing is necessary, you’ll find that almost all lenders require title insurance. The liability limit is usually the purchase price of the home and, in Michigan, is usually paid by the seller unless otherwise arranged.

There is more than one type of policy that can be purchased. An owner’s policy reassures the purchaser that the property title is without flaws and covers any losses or damages should any be discovered post-closing.

A lender’s policy does the same, but protects the financial institution should there be any inaccuracies uncovered during the lifetime of the mortgage.

What’s the worst that could happen?

Title insurance protects the homeowner or financial institution from many inaccuracies including unknown liens, undisclosed heirs, mistakes in the public records, boundary disputes- the list goes on. A good example of one of the main flaws that you can unknowingly inherit with your new home is acquiring a lien that you had previously no idea of. One recent transaction entailed a new homeowner receiving a $6000 water bill upon taking possession of their new house. Upon questioning the seller, it was discovered that they were sent a final bill which was their normal monthly amount of $37 and it had been paid prior to the sale closing.

The question then went to the listing agent who had only taken the final reading on the estimated exterior meter and hadn’t gotten the final numbers from the remote reader inside the home. It was then discovered that for years, there was a very slow leak in the water lines somewhere in the home and had accumulated an additional $6000 worth of water costs.

With both the current and previous owners refusing to pay it and the city not allowing any leniency on the bill whatsoever, who would bear this financial burden? That would be the title company that held the policy; the unknown water bill was technically an unknown lien and was covered by the policy purchased by the sellers.

What’s the process involved in getting insured?

Acquiring title insurance is actually a two-part transaction. The first part typically includes a very thorough search where property records are combed through in order to find any errors, liens or even undisclosed heirs of said property.

The second part consists of the actual underwriting of the loan. During the first process, 1 out of every 3 of those property examinations exposes an issue that was previously unattended to.

Purchasing a home can be stressful enough; having title insurance gives you a little more added protection as well as peace of mind. It’s important to not only protect yourself but also know what that protection extends to; don’t be afraid to ask questions of your agent about insurance. It’s essential to be prepared for the worst- it could save you thousands of dollars in the long run.

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