When you buy a new home, whether it’s a single family house, a condo or a townhouse, you want to focus on buying new furniture for the living room or painting walls, not worrying about having to pay a bill left behind by a previous owner. Or, in the worst case scenario, losing your home and your money due to an issue from the past that had nothing to do with you. Think that can’t happen to you? Think again. Protecting you from those scenarios is why title insurance exists. Let me explain further.
Once you have made an offer on a home and that offer has been accepted, a title insurance company like Prairie Title will be hired to search the history of the property’s title and provide assurances that nothing in the public record stands in the way of the proper transfer of ownership. But there are occasions when that search fails to uncover a lien against the property or other challenge to the title, typically because the lien or challenge was not properly recorded in the county where the property is located, or due to deliberate fraud.
When the sale of the property closes, title insurance policies are issued to both the lender and the new home owner to protect against the possibility that an undetectable challenge to title arises in the future. As it implies, a lenders policy protects the lender’s investment, but does not protect they buyer. An owner’s title insurance policy must be issued to protect the buyer’s investment.
In our area, the buyer usually pays for their lender’s policy, while the owner’s policy is typically paid for by the seller as a kind of promise that the seller is signing over title to the property in good condition. That policy provides protection for as long as the new owner and his/her heirs continue to own the property.
An owner’s policy provides financial protection from:
- Unpaid mortgages
- Unpaid property taxes
- Child support liens
- A missing heir who could claim the property belongs to him or her
- Missed easements or rights of way that could limit your use of the property
- Outright fraud
You may have heard that title insurers pay a small percentage of their revenues in claims compared to property/casualty insurers, and thus title insurance is really unnecessary. While the first part of that sentence is accurate, the second part couldn’t be further from the truth. The focus of the title business is prevention. Title companies spend a large part of their revenues on preventing claims through the title search process. Title insurance is needed for the small number of occasions in which undetectable problems arise after the new owner of a house moves in.
For instance, in a recent case, a Missouri couple purchased a home from their landlord, who had taken out a loan to purchase the property along with several other properties. The lien was missed during the title search, so the lender paid the landlord instead of paying off the lien. Even though they had made all their payments, the bank sent a letter to the home owners saying the home would be auctioned. Because the couple had an owner’s title insurance policy, the title company paid the lien and they kept their home.
That is just one story, but it illustrates how title insurance protects against the unexpected, giving home owners peace of mind and uninterrupted enjoyment of their home.
That’s how title insurance protects you.Â