It Could Happen to You!

By Ann-Marie Sharp of Sharp Realty Partners | Keller Williams Community Partners

“Franklin bought a pretty house on Lot 7 in a rural neighborhood. After he bought the property, he decided to put up a fence, so he hired a surveyor. The surveyor came back with some troubling findings–based upon what he can tell, the pretty house is located on Lot 6. Lot 7 is vacant. Franklin files a title insurance claim.

“Billy and Marilyn have always wanted a place at the beach. After saving for some time, they finally have enough for a townhouse. In looking at properties, they are careful to pick one on the end that has a view of the ocean from the deck. Bill and Marilyn move in and are happy. Eventually, they decide to refinance the property. When they do, they discover something troubling – while they are occupying the nice townhome on the end, they actually own the one next door – with no view of the ocean. They need to get this fixed, so they file a title insurance claim.

“At foreclosure sale, Henry buys a small cape that he intends to rent out. He puts in some work, fixes it up and rents it for a time. After a while, Henry tires of being a landlord and decides to sell the property. He puts in some more work, adds some paint and some landscaping and ends up with an attractive property – much nicer than that one next door that nobody takes care of. Henry quickly gets some offers, but when it comes time to sell, he finds that the house that he has put so much work into is not the house he owns.”*

Do you know any scary stories about people without title insurance? We have a few.  And, they all thought it could never happen to them. 

What is Title Insurance? 

Title insurance is a form of indemnity insurance predominantly found in the United States which insures you won’t have any unknown claims made to the ownership of your home. 

Title insurance is substantially different from other lines of insurance because it emphasizes risk prevention rather than risk assumption. This means much of the premium dollar, about 80 percent, covers the work performed by title professionals, such as the search examination, curative work, policy issuance, and frequently, the settlement or closing. The remaining 20 percent covers the insurance policy, a significant portion of which is put into reserves for claims that could occur 10 or 20 years in the future.

Another difference between title insurance and other types of insurance is that unlike most insurance policies, you pay a one-time fee and your property is covered for as long as you and your heirs own it. 

Types of policies.

There are two types of policies–owner and lender. Just as lenders require fire insurance and other types of insurance coverage to protect their investment, nearly all lending institutions require title insurance (sometimes called a loan policy) to protect their interest in the collateral of loans secured by real estate.

A loan policy provides no coverage or benefit for the buyer/owner and so the decision to purchase an owner policy is independent of the lender's decision to require a loan policy. 

Owner’s policies are available in two types—standard and enhanced. The liability limit of the standard owner's policy is typically the purchase price paid for the property.  If you want protection that will cover inflation, you will want an enhanced policy.  An enhanced policy also provides coverage for liens filed after your closing date, building permit violations, an unrecorded easement, and restrictive covenant violations, to mention just a few.  It is up to you to decide which owner’s policy you want to purchase, but the enhanced policy is strongly recommended. 

Shop around.

A federal law called the Real Estate Settlement Procedures Act (RESPA) entitles an individual homeowner to choose a title insurance company when purchasing or refinancing residential property. Typically, homeowners do not make this decision for themselves and instead rely on their lender's or attorney's choice.  However, the homeowner retains the right to choose a different insurer.  RESPA makes it unlawful for any bank, broker, or attorney to mandate which title insurance company to use. 

While it’s an additional cost that many don’t anticipate, owner’s title insurance can be well worth the expense as even just one title defect can cost more than a policy to correct. Title searches don’t catch everything, and mistakes can be made, so this gives owners one less thing to worry about.  

If we can help you with your buying or selling real-estate needs, please give us a call.

*based on actual title insurance claims