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Why You Need Title Insurance When Buying Property
Whenever you enter a simple or complex real estate transaction, you’re so confused by the numerous unfamiliar foreign terms, financial jargon, fees and other requirements that your head literally begins to spin, particularly if you are a first time buyer. One of those things that will catch you unprepared is when you hear about title insurance for your property.
Title insurance means a specific cost that sounds unfamiliar and strange in our ears. In many cases, due to the terms laid down by the lender, a borrower has no options, to get a loan, for you have to get a title insurance, among others. The lender simply says you require it even though you technically don’t. But you want your loan to be approved at the quantum you want, so you go ahead and purchase it; it is as simple as that. All this is great to hear! Now the 64 dollar raises its head: what type of insurance is it?
When you purchase a home, you need to ensure that those who are selling it to you really have full as well as legal title to it. The person/s that happens to conduct closing is sure to check this by visiting the office of the local property records, and conduct a thorough research on the history of the ownership. Now, here is the tricky part! Those records at the property office might be official, but they could also be wrong. You would think that ownership of a property is pretty straight forward. But that is not always the case. It is also probable that the one who does the title search might make a mistake and also that vital information on the title might not be recorded at all.
The complications of verifying ownership comes down to history. Just imagine that 50 years ago, this house that you wish to buy was owned by a person called Johnson. Let us also suppose that this Johnson used to be bigamist with a second spouse. Now will this information be found on some of the local property records? Not possible. Does the extra Johnson spouse have any ownership claim on the property in question? This question might only be cleared after much legal wrangling, and if you lose, you also lose your house. There can also be other bizarre and incredible claims that are stranger than fiction. Maybe a previous owner was an alcoholic, a drug user or simply insane! Such matters raise the issue of what is termed “cloud” titles, and nobody want clouds, whether it is buyer or a seller.
You see when the real legal owners of a property comes into question, it basically throws everything into chaos and everybody into panic mode. Because how can the seller sell a house to you when he is not it’s proper owner? How can a bank mortgage a house under the name of someone who has no legal rights to it? The worst part is that these problems are very often only uncovered some time after a transaction has been completed. All the money have already been released by escrow. Professionals have already been paid and commissions banked in. You can now probably see why title disputes can be a huge problem. This is where insurers come into the picture.
There is a type of title insurance, termed “lenders” coverage, is designed expressly to protect your lender, if any problem arises. Lenders Coverage is essential and provides protection as much as the original mortgage amount. This means that if you want to purchase a home for $400,000 and could get only a $250,000 mortgage, then this amount is the maximum coverage that you could get with a lender’s policy. If at all there is a claim, the title insurer fights legally on your behalf, and the insurance policy should repay your loan, if necessary. This is real good news for you as the buyer, because you don’t owe the lender anything, in case you are unfortunate enough to lose in court when a radical claimant comes up.
While title insurance is essential for most, if not all lenders, there is a big exception: If you happen to live in the state of Iowa, your native state states that lawyers and personnel who do the title work have to take part in a title guarantee program. If there is a title error, the Iowa state fund offers coverage. Now that is a great example of how the authorities are taking care of you.
Remember that whether you are buying real estate to live in it or for investment, it is an asset of considerable value. Because of this value, there is always a chance that opportunists will exploit cracks in the legal system to grab a slice of it. Even if you are just a homeowner who has no interest in investment, you have to take an investment approach to protect your asset, which is your home. So before saying no as a model answer to every insurance agent that rings up your phone line, you might want to ask them how they can help you instead. They might just have that little product kept in their back pocket called title insurance which can turn out to be invaluable to you in future.