Whether financing with a mortgage or paying cash, buying a home is a significant investment. And when it comes to buying title insurance to protect your purchase, many homebuyers mistakenly believe it is only needed if the property is financed. However, that is simply not the case.
Title insurance is for anyone who owns their property as paying cash will not eliminate the risks protected by this coverage.
Understanding Title Insurance
Title insurance protects against defects in a property’s title. If not addressed before the title is transferred, these defects could jeopardize the new owner’s property rights.
A title search is done to uncover any issues, but, unfortunately, some remain hidden and may not appear until years down the road.
Types of Title Insurance
There are two main types of title insurance— an owner’s policy and a lender’s policy. The former covers you as the owner of the property whereas the latter protects the lender. Both are purchased for one premium payment at closing.
Title insurance for owners is usually optional but it is highly recommended and very valuable. On the other hand, lenders will almost always require you to purchase a lender’s policy for the amount of the loan that will reduce their risk and protect them from loss.
While you won’t be required to invest in a lender’s policy if you are a cash buyer, you will not be protected unless you have your own title insurance policy. Remember — defects can threaten your rights whether you have a mortgage or not.
Common Title Defects
There are so many things that can negatively impact a title. Below are a few of the most common.
Liens. These are outstanding debts against the property that may include unpaid taxes, judgments, and more.
Recording errors. Title examiners rely heavily on public records for their title searches. If there are any clerical mistakes or recording errors with the documents, such as if the legal description is incorrect or a name is misspelled, they may not show up in the search.
Forgery and fraud. Any fraudulent activity, such as a forged signature, may not be caught until it’s too late.
Unknown heirs. If an heir appears after the sale, they could claim to have ownership rights to the property.
Easements. Easements can lead to frustrating circumstances when it comes to having full rights to your property. These generally don’t appear until after the change in ownership.
The Value of Title Insurance
Title defects can arise whether you finance your property or pay cash. And when they do, will you be protected?
Let’s say that an undisclosed heir claiming to have a right to your property wasn’t properly notified about the death of the previous owner. This is not something that can simply be dismissed or overlooked — you are going to have to fight the claim.
Doing so means hiring legal counsel and potentially battling it out in court without any guarantee that you will win. It can be time-consuming, costly, and could result in you losing your home. In other words, it can have a devastating and catastrophic outcome.
Having title insurance means you will have someone fighting for your rights on your behalf. Why risk your investment? Instead, give yourself peace of mind with an owner’s title insurance policy.
Buchanan Settlement Services is a title company in Pennsylvania that offers title and settlement services for residential and commercial real estate transactions.