Buying a new home is one of the biggest investments you will ever make. As you approach closing, all the little details that need to be taken care of may seem overwhelming. It may be easy to overlook the most important step in the process: purchasing title insurance to protect your new home.
Title Insurance is insurance against undisclosed problems with the title of a property. It protects against financial loss due to title defects, unpaid claims (liens) or other matters of public record. Title insurance companies will defend you against a lawsuit attacking your title, or reimburse you for the actual money lost. (As always, see your specific policy for details.)
The lender requires that they be provided with a lender’s title insurance policy (loan policy) to protect their interest in your property up to the amount of the mortgage. While the premium for the loan policy is included in your closing costs, it does not protect you.
Your ownership interests are insured only by an owner’s title insurance policy (owner’s policy). While the lender’s coverage under the loan policy decreases as the mortgage is paid down and terminates when the final payment is made, your owner’s policy remains in effect for as long as you and your heirs own the property.
The owner’s policy is available for a one-time premium and at a discounted rate if purchased simultaneously with the loan policy at the time of closing. The owner’s policy and lender’s policy are recognized as two separate policies, each insuring a different matter. The home buyer usually pays both one-time premiums for these two policies, at the time of the purchase of the home.
There can be any number of prior problems that remain undisclosed even after the most careful search of the public records. These “hidden” defects can be very dangerous and sometimes are not discovered until years after you purchase your home. Examples of these defects are undisclosed heirs, forgery, mistakes in recording or errors in tax records. Without an Owner’s Policy to protect your home, you could spend a substantial amount of money on attorney’s fees to defend your title and protect your rights.