Title Insurance Guide For First Time Home Buyers

In real estate transactions, title insurance is an important tool as it protects mortgage lenders and buyers from financial losses. These losses may arise from disputes or defects that may have gone undiscovered before the transfer of property ownership.

When a seller and a buyer enter a contract of sale for a home, they hire a title agent who initiates a search in the local jurisdiction’s land records for any claims, liens, conflicts, or encumbrances that should be settled before the transfer of the property.

Other than that, the buyer needs an additional measure of protection by purchasing title insurance from a reputable insurance company.

Why Do You Need Title Insurance?

Even though a title insurance policy is optional for the owner¸ most lenders require a person who takes a mortgage to purchase it. Notably, the title insurance policy protects the lenders’ own interest and liability.

The federal government and the state government of Florida heavily regulate title agents and insurers in SW Florida. However, foul play or mistakes may occur, which can cause large financial ramifications for property owners.

Notably, deeds or deeds of trust releases may at times be incorrectly filed, lost, or fraudulent. If this is discovered after purchasing a property, the title insurance policy protects you, according to the National Association of Insurance Commissioners (NAIC).

Some of the common scenarios that a standard title insurance policy may cover include:

• Forged documents
• Fraudulent sellers
• Certain problems missed during a title search
• Improperly filed documents
• Unknown heirs

As a seller, you may be forced to resolve encroachment issues; for instance, you may have to remove a neighbor’s fence or shed before selling a home or tax.

Some common scenarios that a title insurance policy won’t cover include:

• Zoning problems
• Boundary line disputes
• Post-policy claims
• Environmental protection laws

If these are not remedied before closing the title search process, the financial liability of fixing them falls on the buyer as laid down by the Consumer Financial Protection Bureau.

What Does It Cover?

If you make a claim, the title insurance policy would cover the costs and damages that are associated with fixing the problem, according to the NAIC’s Center for Insurance Policy and Research. The body’s title insurance task force has the mandate to study issues associated with title insurance. It also helps regulatory bodies to fight unethical and fraudulent activities.

You should note that the lender’s policy amount is usually equal to the financed amount. The value of the lender’s policy depreciates with time as the mortgage amount decreases—it ends when the mortgage is paid off. Meanwhile, the owner’s policy remains active so long as the owner has an interest in the property.

You should note that this policy only covers the defects which could have occurred prior to the transfer of the property to you. It does not cover anything that happens after you the property has been transferred to you.

What is the Cost of Title Insurance?

The cost of title insurance policy varies with state, loan amounts, and property value. However, according to the National Association of Realtors, the cost averages about $1,000 for property owners. Florida has fixed premium prices, regardless of your situation.

Who Pays for the Title Insurance Policy? (Owner’s Insurance vs. Lender’s Insurance)

It is worth noting that most lenders expect buyers to pay for their title insurance policy in addition to the buyer’s policy. Even though you may disclose the estimate costs in a Closing Disclosure or Good Faith Estimate, they may slightly change depending on the final terms of the deal. Besides, the lender’s title insurance policy is normally lower than that of the buyer since their cover reduces with time.

Some optimal services or fees may be included in your title insurance premium price. However, you can negotiate for these fees to be lowered or removed.

What Next After Purchasing the Property?

After purchasing the property, you should ensure that the title process is working as you expect. Therefore, you should ensure that the deed and any other applicable deeds of trust easements, and covenants were recorded to the land records office. If you are in SW Florida, you should follow this up at your county’s land records office or check their online database.

Until you transfer or sell the property to another buyer, you should safely keep a copy of your title insurance policy as well as your closing statement documents.

Getting Started

A title insurance policy helps you avoid legal nonsense and focus your energy on making your new house a home. This title insurance guide will get you started. However, some things are best left to the experts. If you are buying or selling a property, partnering with the right people will help you save money and time. For more information, inquiries, or consultations about title services, do not hesitate to contact us. Our experts are always ready and willing to assist. At Heights Title Services, LLC, we deliver real solutions for real estate.