Many of my buyer clients ask what title insurance is, and why they may need to purchase it at the time of closing on their new home.
Simply put, title insurance is an insurance policy that protects you against loss due to an unknown defect in title or an interest in your home. (Real estate title is a legal document stating you are the rightful owner.) It’s a one-time payment; the cost is about 1% of the home’s value, and if you need to make a claim, there is no deductible to pay. Additionally, it covers you for the entire time you own the home. Claims from previous owners or their heirs, judgments against prior owners or permanent easements from utility companies can be extremely costly to the new buyer!
Most common uses of title insurance:
1. Judgment against the prior owner: If the title search didn’t find the judgment or if a new judgment has been issued against the previous owner and the court indexes aren’t updated, a judge can order a lien be put on the home, which you could be responsible for paying. The most common example is a lien put on the property due to costly unpaid medical bills the prior owner has incurred.
2. Easement on the property: Title insurance protects against easements/rights of way that are not recorded properly and can diminish your property value. For example, a cable company could have a permanent easement on your land and have the right to dig large trenches in your yard. If you have title insurance, the company will send you a sum of money based on the purchase price and the type of easement.
What if I chose not to purchase title insurance and an issue arises?
1. You can hire an attorney to help you clear the lien in court and correct the title on your home. Most attorneys charge a $10,000 retainer for such a service.
2. You can simply pay the lien, which can be extremely expensive, and you would still be responsible for clearing/correcting the title at the courthouse.
About 90% of buyers elect to purchase an Owner’s Title Policy to protect them against the risks of an issue arising, and title insurance companies are paying $100 million per year in title insurance claims.
If you have further questions, please reach out to me.
Lynn Cooper is a licensed REALTOR in Virginia with McEnearney Associates in McLean. Whether buying or selling, Lynn is 100% committed to her clients before, during, and after the transaction. Connect with Lynn at 202-489-7894, [email protected] or @lyncooperrealestate.
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