If you're a prospective home buyer, chances are you're considering getting title insurance, or are wondering what sets it apart from other new home-related insurance types like mortgage insurance and property insurance.
Is title insurance something you actually need? And what does it accomplish?
As it turns out, quite a bit.
When you buy a home, you are essentially taking title to that property — which refers to all the legal rights associated to the possession of your home and property line. Title insurance protects that title against fraud or defects that can affect the ownership of your property.
Coverage for the past, present, and future
The scope of title insurance is fairly broad since it protects against things that may happen in the future (like someone stealing your identity and removing equity from your home), while also safeguarding your title for events that may have happened in the past (like old instruments on your title that were not properly discharged).
It even protects against some misconduct of the previous owner. For example, if the previous owners did not remit property tax as they claimed to on closing, title insurance would ensure that those unpaid taxes do not end up as a lien on your property.
Title insurance also protects against zoning issues, existing work orders, certain encroachments and set-back violations, among other things.
If you already have a title insurance policy, it is always a good idea to read it over so you under not only what it covers but also what is not covered (like flood damage, work orders arising out of work you completed on the property yourself, environmental hazards, and more.)
How can I get title insurance?
Title insurance is typically arranged by your lawyer when you purchase your property, but existing owner policies can be issued as well.
When you refinance your home, lenders will generally require you obtain a title insurance policy on their behalf. These policies are called lender policies and only protect the lender in case of any defect or fraud related to your title.
To ensure that you, as homeowner, are protected, you need to obtain a homeowner’s policy. Homeowner’s title issuance requires a one-time payment, and your coverage is as good for as long as you or your heirs own the property.
Every time you refinance. even if it is with the same lender, you need to purchase the lender’s policy. The cost of title insurance and a lender’s policy will vary depending on the value of the property – you can expect to pay around 0.5% to 1% of the property value on title-related insurance.
Read more about closing costs here.
Is title insurance required by law?
Are all homeowners legally mandated to get title insurance? No.
Your solicitor may be able to provide you with an opinion on title instead, which is a document that lists all your legal rights and defects of the title. An opinion, however, does not protect against any future fraud related to your title, isn’t as thorough as a title insurance policy, and may not be the best option for your purchase. Regardless of which you choose, it is important to talk with you lawyer about your options to figure out the best way forward for you.
Keep in mind that even if you do not arrange a policy for yourself, your lender may require a policy for themselves.
Lastly, there are a variety of providers in the market. Find out which company your lawyer is using and why. You want your lawyer to arrange the best possible coverage for you so have a conversation with your lawyer about which companies they arrange title insurance with.
Not all companies are created equal, and it is important you work with a lawyer to ensure you have the best coverage possible.
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