When buying a home, it’s a good idea to get homeowners insurance to cover losses due to fire, storm damage, or theft. Some home buyers will get mortgage life insurance to ensure that the debt is paid in full in the case of the mortgagee’s death. Neither of these policies addresses one of the most crucial parts of any real estate purchase: the property’s rights to clear and equitable title and ownership. The only method to secure complete title protection for new owners and their investment is to purchase an owner’s insurance. The title to a property refers to all of your legal rights to own, use, and sell real estate, including both land and improvements. In the event that the legal rights of ownership to a specific property are disputed, title insurance protects against the possibility of future loss. An owner’s title policy and a loan policy are the two most frequent types of title insurance.
In a real estate transaction, a loan policy protects a lender by ensuring that they have first lien status and sound equitable title up to the policy’s value, which is often the loan amount. A lending policy is in place throughout the duration of the mortgage.
An owner’s policy protects the buyer or new owner of the property against loss up to the policy’s full value, which is usually the amount of their investment or the property’s sales price. The owner’s insurance is in effect as long as the property is owned by the owner or their heirs. In Texas, an owner’s policy is optional and may be declined, however this is not recommended. A loan policy will be required by all responsible lenders.
The new owner’s interest in the real estate purchased is protected by an owner’s title policy, which covers claims such as:
- Errors in legal document recording
- Unknown or undisclosed heirs
- Previous owners who did not properly divest themselves
- Forged or fraudulent deeds and wills
- Acts committed by minors or those who are mentally ill
- Deeds done using a power of attorney that isn’t valid or has expired.
- Tax liens or homeowner association dues and levies that have not been paid
- Liens that haven’t been released
Your title insurance may assume responsibility for certain covered risks associated with the ownership of your property in exchange for a low, one-time premium paid at closing. If the defense fails, the title insurer may reimburse the insured up to the amount of the policy’s face value.
Some industry investors believe that a title search will provide the necessary protection when purchasing real estate. In reality, a title search is nothing more than an abstract or a report/record of all county filings filed against a specific property, including current vesting and third-party claims filed of record. A “search” or “abstract certificate” from a title company can be obtained for a very low price, but it is not insurance.
Once title has been requested, a title firm will evaluate all of the search papers to determine:
- All previous owners lawfully relinquished title.
- The property was free of all prior liens.
- Any documents are filed under a certain name or names, for example.
The resulting title commitment will summarize all findings and conditions for resolving any title concerns so that good and equitable title can be supplied through the final title policy.