Why Homebuyers Need Title Insurance

When buying a house or parcel of land, buyers often wonder whether they need title insurance. For most people, buying a home is the most significant investment of their lives. It makes financial sense to protect that investment with title insurance. Here are some common questions homebuyers have regarding title insurance:   What is Title Insurance? Owner’s title insurance is protection against a third party contesting your ownership rights to your property. Essentially, title insurance is protection against defects that can cost buyers their homes. For example, assume a previous owner of your home had a $100,000 balance on their mortgage, and a title search failed to locate this lien. You then buy your home without knowledge of the mortgage. The $100,000 mortgage will be the first lien on the property and could allow the lienholder (usually a bank) to foreclose on your property, much to your surprise and dismay. In this situation, title insurance will pay the $100,000 mortgage to protect your interest in the property.   Wouldn’t a Title Search Find Issues with Title? Ideally, yes, a title search would discover all issues with title. However, even the most thorough of title searches may not find hidden defects such as incorrect representation of the marital status of a previous grantor, forgery of a previous deed, or a clerical error during the recording of a previous deed. When a title search fails to unearth such a situation, title insurance steps in to pay the legal expenses needed to correct a title defect or pay claims arising from a problem with real estate ownership rights.   Why Do I Need Title Insurance if My Lender Already Has It? Most buyers borrow a significant portion of the purchase price of property from a lender. Almost all lenders require a lender’s policy of title insurance because they recognize that title searches are not infallible. The lender’s policy, though, only insures up to the outstanding loan balance and terminates once the loan is paid off. It will not protect the buyer.   How Expensive is Title Insurance? Title insurance is relatively affordable compared to the costs of other common types of insurance. In fact, North Carolina has one of the lowest rates for title insurance in the country. The buyer of property pays a one-time premium at closing, and the insurance coverage lasts as long as the buyer and the buyer’s heirs have an interest in the property. The cost of title insurance depends on the amount of coverage purchased. As a reference point, though, a buyer of a $250,000 house should expect to pay a one-time fee of $500 – $600 for title insurance. This fee can be significantly less if the buyer is financing the purchase, and the lender is requiring a lender’s policy. If you have additional questions about title insurance or would like to speak to an attorney about handling the closing on the purchase or sale of property in Boone, North Carolina, or the surrounding area, please contact the Law Office of Robert B. Angle, Jr. at (828) 265-0016.