What is title insurance? Why does my lender want it? Do I need it? How much does it cost? Are there different types?
These are all important questions to ask when buying a home. Lawyers, realtors and lenders all use specific terms when talking about title insurance, and it can be confusing to a first-time buyer or even a seasoned vet when you get too far into details.
What is title insurance?
Title insurance is a policy with a one-time premium based on the purchase price for the Owner’s Policy or the loan amount for the Lender’s Policy. The policy protects against any possible defects in the chain of title, like extra sellers in the chain, unreleased liens, judgments against the property or some boundary issues. These are all things that can create a “title cloud” or result in a claim against the property. Without insurance, the owner or the lender is left without recourse (other than paying out of pocket to resolve these issues). Title insurance companies will step up and litigate, or settle a claim, if a policy exists on the property that covers the claim at issue.
Why do you need it?
Lenders require buyers with mortgages on the property to purchase title insurance. They want as much protection as they can get against any possible claims that were discovered in the title search. Owner’s Policies are optional but highly recommended in the industry. Owners are subject to the same risks as a lender and an Owner’s Policy can protect them in the same way.
How much does it cost?
The policy has a one-time premium based on the purchase price for the Owner’s Policy or the loan amount for the Lender’s Policy.
What are the different types of Policies?
Other than the difference between a Lender’s Policy and an Owner’s Policy, there are also types of coverage for each. A basic policy doesn’t cover certain liens that may attach to the property or specific modes of access to the property (pedestrian or vehicular). For this type of coverage, an enhanced policy would be needed. The enhanced policies cost 20% more than the basic policies, but cover more potential title issues. An enhanced policy can only be issued if the buyer holds title in the name of an individual or group of individuals (not as an LLC, company or any other artificial person). Make sure to ask your attorney what kind of policy you’ll be getting and what it covers.
This legal update is published as a service to our clients and friends. It is intended to provide general information and does not constitute legal advice regarding any specific situation. Past success does not indicate likelihood of success in any future legal representation.
ABOUT THE AUTHOR
Sarah Fuentes joined MGC Real Estate’s Columbia office in May of 2015. She earned a Juris Doctor and Bachelor of Science from the University of South Carolina. Sarah is a member of the Palmetto Land Title Association and Richland County Bar Association.