When purchasing a piece of real estate, you will go through many steps in order to obtain title to the property. This isn’t the physical aspect of ownership, such as a deed, but rather a legal concept that gives you the rights to your new home.
When you take title to the property, you want to make sure that it is free and clear to avoid any unforeseen issues down the road.
Title insurance is a layer of just-in-case protection you need to defend your ownership rights. Here is what every homebuyer should know about it.
What is Title Insurance?
Simply stated, title insurance is a policy that protects homeowners, as well as lenders, from the effects of title issues – including significant financial losses.
Unlike common insurance policies like health insurance or car insurance that protect against future issues that may occur, title insurance protects against things that have already happened before you took title. For instance, liens, outstanding taxes, judgments, and so forth for the previous owner.
When you purchase your new home, you want to make sure that there is nothing attached to the title. This is referred to as a clear title. Unfortunately, it is not uncommon for hidden issues to become visible after you take legal ownership. And, just as the property is transferred to you, so are the title defects.
Title insurance helps protect your rights should this happen.
How Does Title Insurance Work?
Imagine investing all of your life savings on a down payment for a home – only to find out that there were issues with the title that affect your rights to the property. This is a devastating situation that happens more often than you’d think – especially without the involvement of a title company.
A title company will perform a title search. This is a deep dive into the history of the property’s records looking for anything that could cause an issue with the title, such as:
- Unpaid taxes
- Erroneously recorded documents
- Forgery or fraud
- Unknown heirs or wills
- Improperly signed documents
Of course, this title search also confirms that the seller has the legal authority to sell the property, too. Any issues that arise during this search must be addressed prior to closing.
Despite the in-depth nature of this title search, it is possible for things to get missed. It may appear as though a title is clear, only for something to arise weeks, months, or even years later.
Title insurance can protect your right to the title if they do.
What Title Insurance Covers
There are two types of title insurance policies available, including owner’s title insurance and lender’s title insurance. Each serves an extraordinary purpose, offering protections for either the owner of the property or the lender.
Let’s take a closer look at what they cover.
Owners’ title insurance policies protect the owner and the owner’s heirs for as long as they have an interest in the property. This type of policy is in place should any title defects arise once ownership is transferred.
Lenders’ title insurance policies protect the lender. And purchasing this policy is often a mandatory condition of the loan. This offers lenders a blanket of protection since they are taking a risk by giving you the funds to invest in this property. Should something go awry, a title insurance policy enables them to recover funds up to the loan amount.
It is worth noting, however, that a lender’s title insurance policy will not protect you (as the legal property owner) from financial loss or damages.
Florida Title Insurance at Florida Title Center
Although it is optional in many states, title insurance in Florida is required when you purchase a piece of property. At Florida Title Center, we know just how important title insurance is – and we take the time to make sure you understand its value, too.
Get started on the title work for your new purchase and learn more about title insurance along the way. Contact us at (954) 848-4224.