What is Title Insurance

If you own or lease a car, you should already have an automobile insurance policy. Some people buy an insurance policy before they take an expensive vacation in the event it gets cancelled. Superstar athletes sometimes even take out insurance policies on their legs or arms in case they are injured. But many people buy their home without understanding that they have the opportunity to buy title insurance to protect their greatest single asset.

Title insurance is a policy that you can purchase as the purchaser of a home (an “owner’s policy”) or that lenders purchase to protect their interest until the loan is repaid (a “lender’s policy”) that will protect you from claims that allegedly took place before you purchased your home.

When you purchase your home, farm, business, or other piece of real estate and take out a mortgage loan, the lender typically will request that a title company search the public record of deeds, mortgages, liens, and other recorded documents to ensure that their mortgage is protected. If a problem is found, such as a deed that was improperly recorded, the title company will work to remedy that issue and then the underwriter will consider whether they can issue a title insurance policy for the lender.

Sometimes there are problems in the public record, such as a mistake in the filing or a forgery in a recorded document, that are not discovered before you purchase your home. This often happens despite a skilled title examiner carefully reviewing the records. In that case, the lender’s title insurance policy will help protect the lender’s mortgage rights.

However, the purchaser also can purchase an owner’s title insurance policy that will protect their rights of ownership and this policy will last as long as you own your home.

Why New Homes Need Title Protection

You have worked for years to save and save to build the home of your dreams. Hours and hours at the kitchen table drawing up “blueprints” of your perfect floor plan and flipping through magazines for landscaping ideas. And then, in the middle of construction, you learn that someone you’ve never met is claiming that they actually own your lot where your new home is being built.

Title issues with newly constructed homes most often involve claims of legal ownership of the property on which the new home is being constructed. Even though your newly-constructed home is new, the land has been there since title records were first kept and it is possible that some other person or organization may claim that they actually own the property.

As the first owner of this newly-constructed home, you can actually be at greater risk for a title defect because the title examination conducted as part of your construction project could be the first review for title defects in years. Especially if the land was being held for development and has sat empty for a long time.

Likewise, when purchasing a new home in a brand new subdivision, it’s extremely important to make sure that the land was properly subdivided and that your home is located on the correct lot within the subdivision to ensure that there is no question of ownership in the future.

Lenders and buyers (especially when they are building a new home) can be protected against claims with title insurance. Most mortgage lenders require the purchase of a lender’s policy even if you are purchasing a lot to build or are buying a brand new, already-constructed home. The lender’s policy does not protect the buyer, though, so it is important to consider purchasing your own separate owner’s title policy to protect your investment against potential future claims.

If you are in the market to build a new home or are purchasing a newly-constructed home, contact our title agents at 937-552-7050 for more information.