Home Buyers Take Note, Title Insurance is a Must
August 11, 2016
If you purchase a home with a loan, the lender who holds your mortgage will require title insurance as a condition of sale — one policy for you, and one to protect the lender itself. Cash buyers as well are strongly encouraged to purchase title insurance for reasons I will outline below.
The primary function of title insurance is to protect homebuyers against losses if the title to a property is not clear of defects. Defects such as liens, judgments, or bankruptcies, may not be known at the time the policy is issued, so the title company does due diligence by examining public records for past deeds, trusts, decrees, bankruptcy filings, wills, court judgments, and any tax records that may be outstanding.
Follows are common title defects that could cause a homeowner to lose their property.
Mechanic’s Liens: These are liens placed against a property that a general contractor, or someone who worked to improve the home filed before beginning the work. This is to ensure the contractor is paid, and the lien is to be released when the job is finished. Problems can surface if the contractor does not file a “satisfaction” of the lien and, thereby, the lien remains on the property title.
Bankruptcies: This can cause a problem when, for example, a seller buys a home while single but then marries someone with a recent bankruptcy. The title company must ensure the new spouse has signed off on the deed and also that the bankruptcy case has been discharged. If not, the title company would need to petition the court to release the property from the bankruptcy process.
Marital Divorce: This often causes problems when a divorced spouse does not remember to remove a lien for child support, even though the debt may have been resolved long ago. Also, lien issues may arise from past-due spousal support or delinquent taxes.
The title insurance premium is based on the sale price of the home, and is paid only once.
Many factors are involved when looking for and purchasing your dream home. Dana Green, Lafayette’s #1 Realtor since 2008 provides homebuyers trusted real-time local real estate knowledge and the confidence to act quickly and aggressively when the right property comes on the market.
Photo credit: Caitlin Childs
Categorized in: Home Buying Tips
Written by Dana Green Team