Imagine if you will, you've been looking long and hard for a house and you finally find a place you love.
It’s $800,000 and in today's market, seems like a good deal. You draw up paperwork with the owner and put down a deposit, all seems good. Then suddenly, you wake up in cold sweat wondering: how do we really know it's really his house? How do you know that he has the legal right to sell it to you? Are there liens on it? Are the taxes paid?
Don't worry, there's a tool to protect you: it's called title insurance.
Title means the legal right to ownership.
Title insurance protects both property buyers and lenders against loss or damage occurring from: leans, encumbrances, or defects in the title or actual ownership of a property.
Essentially, there are two types of title insurance:
- Owner's title insurance protects the buyer, by ensuring the buyer is receiving the ownership they are expecting in the property.
- Lender’s title insurance protects the lender, by ensuring the lender is receiving the right that they need for their loan encumbering the property.
Customarily, the seller will pay for the owner's policy and the buyer will pay for the lender's policy.
The title insurance starts out with something called the title search: this is an in-depth search to see who owns the property and any rights, incongruences, encroachments, or back taxes are against it. They search out boundaries and legal ownership to help them make sure that these entities have the right people involved and they have the right to sell it to you.
This information comes up in something called the preliminary title report. This is a report that is presented through escrow when getting title insurance. Some of the things that you're protected from include forgery or fraud that may be going on. The person selling you a property must have the right to do so.
There could be legal issues with ex-spouses or siblings that create a messy situation that would be hard to fix. The title insurance company will do the research to protect against such “clouds on title” and maybe even more important, protects you from damages in the future that you may incur.
Title insurance is unique if you think about it like this: You pay a one-time fee for a company to research the past so that you are protected in the future for as long as you own that property.
You absolutely should not buy real estate without title insurance. If lenders do not loan on real estate without a lender's policy, why would you ever buy real estate without a buyer’s policy?
I know this is a lot, and if you would like to find out more about this or find out more about the process, feel free to reach out here at the Mike Dunfee Group and we would be happy to assist you with your real estate needs.
Dunfee Real Estate Services
DRE # 02026232