During the real estate transaction (especially if you're a first-time buyer), you're hit with so many foreign terms, fees and requirements your head spins. One of those strange and unfamiliar costs is title insurance. In most cases, borrowers have no option—either you get title insurance (among other requirements) or you don't get a loan.
The lender says you need it, you want the loan to go though, so you buy title insurance. Great. So what is title insurance?
When you buy a home you want to make sure that the people selling it actually have full and legal title. The party who conducts closing will check this out by going down to the local property records office to research the history of ownership.
But—and here's the tricky part—those records down at the property office may be official, but they may also be wrong. It's also possible that the person who does the title search can make a mistake and also that important information may simply not be recorded.
For instance, maybe a bill against the property was not recorded or some taxes were not been paid. Or, suppose that 40 years ago the property you want to purchase was owned by Smith. Let's also imagine that Smith was a bigamist with an extra spouse. Will this matter show up on the local property records? Not likely. Does the additional Smith spouse have an ownership claim against the property? That may only be clear after a lot of legal wrangling—and if you lose, you could lose the house.
There may be other odd and bizarre claims as well. Was an owner an alcoholic? Insane? A drug user? Is there a contractor with a claim against the property? Such issues can "cloud" titles and neither lenders nor owners want clouds.
One form of title insurance, "lenders" coverage, is designed to protect (who else?) your lender in case of title problems. "Lenders" coverage is required and generally provides protection up to the original mortgage amount—if you buy a home for $300,000 and get a $250,000 mortgage, then $250,000 is as much coverage as you can get with a lender's policy. If there's a claim, the title insurer will fight on your behalf and if there's a claim the policy will pay off the loan if necessary. This is good news for you because you won't owe the lender a dime if you lose in court.
But there are also some options.
For instance, you can also get "owners" coverage. This will protect your equity—that $50,000 in the example above not covered by the lender's policy. And you can often get an "inflation rider" with an owner's policy—as the value of your home goes up, so does the value of your title coverage.
While title insurance is required by virtually all lenders, there is one big exception: Loans made in Iowa. In Iowa, the state says that attorneys and others who do title work must participate in a title guarantee program. If there's a title error, the state fund provides coverage.
Lee Williams brings 18 years of solid mortgage banking, investing and real estate expertise to Keller Williams Realty and our clients. Throughout his award-winning real estate career, Lee has gained a....
550 Deep Valley Drive, Suite 359
Rolling Hills Estates, CA 90274 424-287-4817
Based on information from California Regional Multiple Listing Service, Inc. as of October 23, 2019 4:20 AM. This information is for your personal, non-commercial use and may not be used for any purpose other than to identify prospective properties you may be interested in purchasing. Display of MLS data is usually deemed reliable but is NOT guaranteed accurate by the MLS. Buyers are responsible for verifying the accuracy of all information and should investigate the data themselves or retain appropriate professionals. Information from sources other than the Listing Agent may have been included in the MLS data. Unless otherwise specified in writing, Broker/Agent has not and will not verify any information obtained from other sources. The Broker/Agent providing the information contained herein may or may not have been the Listing and/or Selling Agent.
Based on information from CARETS as of October 23, 2019 4:20 AM. The information being provided by CARETS is for the visitor's personal, noncommercial use and may not be used for any purpose other than to identify prospective properties visitor may be interested in purchasing. The data contained herein is copyrighted by CARETS, CLAW, CRISNet MLS, i-Tech MLS, PSRMLS and/or VCRDS and is protected by all applicable copyright laws. Any dissemination of this information is in violation of copyright laws and is strictly prohibited.
Any property information referenced on this website comes from the Internet Data Exchange (IDX) program of CRISNet MLS and/or CARETS. All data, including all measurements and calculations of area, is obtained from various sources and has not been, and will not be, verified by broker or MLS. All information should be independently reviewed and verified for accuracy. Properties may or may not be listed by the office/agent presenting the information.