Protecting Your Investment: Understanding the Importance of Title Insurance
If you’ve purchased a home or real estate before, you’re probably familiar with title insurance. Whether you’re a first-time home buyer or have extensive experience, you may wonder, “Why do I need another insurance policy? It’s just another closing cost.” If you are a cash buyer, it may be tempting to skip title insurance to save on your closing costs.
While that may seem like a great way to save money, it may cost you more in the long run if unexpected claims are ever made against your property. A home is one of the most expensive and important purchases you will make, and you should take every measure possible to protect your investment.
Unlike most insurance policies, the title insurance premium is a one-time cost that’s paid at closing. The fee depends on the purchase price, and the coverage is for the lifetime of your ownership.
This may be dull, dry, and boring, but it’s essential information for every homeowner to understand. Let’s explore the ins and outs of title insurance, including what it is, why it’s necessary, and how to get coverage.
Title Insurance: What It Does
Title insurance protects homeowners and lenders from financial loss due to defects or issues with a property’s title. When you purchase a home or property, it is vital to understand the importance of title insurance and how it can protect your investment. It can cover issues such as outstanding liens, public record mistakes, and property ownership disputes.
Without title insurance, these issues could result in costly legal battles or even the loss of your home. You and your mortgage lender want to ensure that the property is yours and that no other individual or government entity has any rights, liens, or other claims to your property. Title insurance ensures that your interests as a homebuyer are fully protected. Buying a home is a big step emotionally and financially. With owner’s title insurance, you are assured that the title company will bear any valid claim against your property and that the odds of a lawsuit are slim.
Regulation of Title Insurance Agencies
Title insurance in Pennsylvania is state-regulated, ensuring that providers operate in compliance with state laws and regulations. Title agents must be licensed and must complete continuing education courses to maintain their licenses. Additionally, the state regulates title insurance fees. The Department of Insurance (DOI) sets the maximum rates that can be charged for title policies, allowing the price to cover the cost of coverage and provide a reasonable profit for the title company.
Types of Title Insurance
Title insurance companies serve buyers, sellers, real estate developers, builders, and mortgage lenders. Title companies typically issue two types of policies: owner’s policies and lender’s policies.
According to federal guidelines, owner’s title insurance is technically optional; however, most title agents strongly recommend protective coverage. As the name implies, owner’s title insurance covers your interest once you own the home. This policy provides coverage for issues with the title that may arise after the purchase of the property. For example, if a boundary dispute arises after the purchase, the owner’s title insurance policy would cover any legal costs associated with resolving the conflict. The additional fee when purchasing a mortgaged property is nominal. Please consult with a licensed title agent before deciding to opt-out.
Lender’s title insurance will protect the lender’s interest in the property. This policy is typically mandatory as a condition of the loan. It covers the lender for any losses they may incur if title issues arise that were unknown at the time of the loan. For example, if a lien or mortgage is discovered on the property after the loan has been made, the lender’s title insurance policy would cover the lender’s losses.
While owner’s and lender’s title insurance policies protect against property title issues, they do not cover the same risks.
What is Enhanced Title Insurance?
Enhanced title insurance, also known as “extended” or “expanded” title insurance, is a type of title insurance that provides additional coverage beyond a standard title insurance policy. This optional coverage can include things like zoning or building code violations, permit issues, disputes over property boundaries, forgeries, and issues that could happen in the future.
Enhanced title insurance may be a good option for buyers of properties that have been in foreclosure or are in the process of being foreclosed, as these properties may have a higher risk of title-related issues. Enhanced title insurance does come with a modest fee on top of the standard title insurance policy. A careful review of the enhanced policy’s terms and coverage will show the benefits are well worth the small additional cost.
The Title Search Process
Before issuing a policy, the title agent will extensively search public records to determine if anyone other than you has a legal interest in the property. The search will use public records as well as other sources. The title search typically takes a few days to a little more than a week, although it can take longer during peak demand in the real estate market.
During the search, title problems are usually found and cleared up before you purchase the property. Once a title policy is issued, if any claim covered under your title policy is ever filed against your property, the title company will pay the legal fee for protecting your rights and any covered loss arising from a valid claim.
What Title Agency is Best?
I always recommend local title insurance providers to my clients, whether they are using a title company or a real estate attorney. A local title agent is the best option for home buyers because they have a solid working knowledge of the local real estate market in Wayne and Pike County and the adjoining counties and municipalities. They know who to contact for tax amounts and homeowner association fees. This knowledge can be valuable in ensuring a smooth and efficient closing process.
Over the past 16+ years as a Realtor at Lake Wallenpaupack and Lake Ariel, I have built a solid network of real estate professionals to assist my clients at various parts of their journey to homeownership here in Northeastern PA and the entire lake region of the Pocono Mountains. That network includes title companies and real estate attorneys who have done a solid job for my buyers (and sellers).
Please reach out for a list of my trusted real estate professionals, including title insurance agents and real estate attorneys.