If you've heard stories about homeowners who wake up one day to find someone has a claim to their homes, know they aren't far from the truth. You may think that the title search conducted before closing on your home is enough to protect you. However, title search companies and attorneys can miss certain details or pre-existing claims during your title search.
Many lenders require buyers to buy title insurance to protect the institution in the long run. You might be asking yourself, what is title insurance? Is it worth it for me?
What Is Title Insurance?
Before going into detail about who pays for it, we'll discuss the basics about title insurance. This type of insurance protects you or the lender from any defect on the title to your property. Title search companies and attorneys look into the title chain during their research on who owns a property but they can miss prior claims or details that can put your homeownership in jeopardy.
Forgeries and mistakes in the property records are some examples of title problems that may arise in the future. Lender's and Owner's Title Insurance are the two types of insurance policies you may buy before closing on your home.
The former protects lenders from any title defects that may arise after closing on your home. Lenders require you buy this coverage to protect themselves if you foregoing paying your mortgage in the future because of a title defect such as a pre-existing claim on your property.
How Does this Insurance Protect You?
You may think buying an owner's title insurance policy is an unnecessary expense since a title search company deems your property title free and clear from any defects. Experts have found that one in three title searches show defects that are then fixed before closing on a property.
However, title search companies may not find every defect or may miss details about your property title. Sometimes authorities such as county clerk offices or title agents may have committed errors when recording prior deeds to the property. Title agents might even forget or misplace property titles which therefore aren't recorded accordingly.
If you own a property with a faulty title, these mistakes can arise later on and put your homeownership in jeopardy. However, if you choose to buy an owner's title insurance policy, you won't have to defend yourself on your own. Your insurance issuer will pay your defense from any title claims and compensate you for any equity you lose due to the title defect.
Generally, owner's title insurance policies protect you from forgery, fraud, spousal claims, and undisclosed heirs. However, the number of contingencies covered and available will depend on your title insurance company.
Coverage such as a restriction endorsement to protect yourself from violations against the restrictions of your subdivision may not be included in your policy. We recommend you discuss your title insurance coverage and any endorsements you may add for your protection with your insurance carrier.
Who Is Responsible for Title Insurance?
In most states, buyers are responsible for paying both title insurance policies as part of their closing costs. Generally, buyers pay for the lender's title insurance policy but it's negotiable between the parties as are many real estate transaction costs.
When it comes to covering the costs of the owner's title insurance policy, the responsibility may vary in a state or even county basis. In states such as Texas, sellers typically pay this insurance policy when selling their home while the buyer pays for the lender's policy.
The state of Florida is an example of where the responsibility for owner's title insurance costs varies on a county basis. If you were buying a home located in Dade County, you would be responsible for paying the owner's title insurance while the seller would pay for it if the home was in Palm Beach County.
A title insurance policy costs about $1,000 on average. This cost is split between premiums and service fees. Premium costs on these policies can range between $100 to over $2,000.
Your premium will depend on the value of your property and the amount of work needed to fix any title issues. Besides the cost of your premium, you will need to cover any service fees such as the title search fee.
We recommend consulting with your title insurance carrier for details about service and other fees of your policy. Keep in mind that you may negotiate these fees by just calling your insurance company.
When it comes to paying for the title insurance policies, you may negotiate who's responsibile for these costs. While negotiating your closing costs is a complex give and take between the parties, you can benefit immensely from partnering with a local real estate agent.
A realtor can provide a clearer picture of your title insurance responsibilities according to your location and negotiate the best deal. You should consider working with an agent such as a Clever Partner Agent to negotiate your home buying or selling costs, get a Home Buyer Rebate, and even save on realtor fees. When you choose a Partner Agent, you'll get the best deal when home buying or selling a home.