Most adults know how auto and home insurance work, but not very many could tell you how title insurance works—or even what it is! Lenders require buyers to purchase title insurance when buying a home, and it protects both the buyer and the lender should it be discovered that a seller didn’t have the right to sell the property.

What Is Title Insurance?

Real Estate “sold” sign with red brick building and trees blurry in the background

Title insurance comes into play in the event that a previous seller didn’t have a legal right to transfer ownership of the property. If someone else legally owns the property, the buyer could lose the home and all the money paid into it. Most title insurance policies cost a one-time fee of around $1,000, and without it, a buyer and lender could lose hundreds of thousands of dollars.

Because title insurance doesn’t involve a payout, the title insurance company usually researches the title before the sale closes. This avoids surprises that might come up years down the road. The insurance company will research the property history, past mortgage liens, deeds, wills, and other legal documents. Even if the search is done before the sale, buyers with title insurance are still protected from issues down the road.

What Types of Policies Exist?

There are two types of title insurance policies: lender policies and owner policies. The lender policy pays off the remaining mortgage amount so the buyer won’t have to. An owner policy covers the amount of the unpaid portion of the loan, including interest, so the buyer isn’t out a house and everything he paid in. It’s wise to purchase both policies.

Why Is Title Insurance Necessary?

Property ownership disputes happen due to family estrangements, divorces, will contesting, and other reasons. Perhaps a seller inherited the home through a will, then sold it. Later, a new will is discovered, leaving the home to someone else. The new buyer is left in a nightmare situation since the seller didn’t have the right to transfer the property. Perhaps there’s a tax lien on a property sold years ago; without title insurance, the new owner would be responsible. There have even been times when renters have knowingly tried to sell homes they didn’t own! While this situation is rare, it makes the one-time fee for title insurance worth it.

If any of the situations above have happened to you, don’t leave it up to the title company to resolve. With or without title insurance, your family’s home is at stake. Real estate law is complicated, and it’s important to consult with a lawyer to explore your options. The Law Office of Arthur P. Skarmeas, LLC has over 20 years of experience handling complicated real estate and estate planning transactions, and we may be able to help you. We also assist new homebuyers through their purchase. Give us a call today at (978) 887-0093 to speak with our attorneys.

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