With all that’s involved in buying a home, you would think that by the time the last form is signed there would be no doubt that you own the home. Unfortunately, this is not always the case. That is why you should not close on a house without having your attorney, or someone approved by your attorney to conduct a thorough title examination of the property to determine who really owns it. In real estate “title” refers to the rights of ownership and possession of a particular property. Before title can be sold to someone else, it must be “marketable”- free and clear of liens or other title defects that would be unacceptable to a prudent, educated buyer in the reasonable course of business. To ensure marketable title, your real estate attorney can produce a title search- an examination of public records concerning the property you intend to buy. A thorough title search should uncover any identifiable problems (defects) with the title.
Not all title defects are part of the public record. Such “hidden” defects may not be found in the course of a title search, no matter how thorough the examination. This is where title insurance comes in. Title insurance protects you against problems with the title that you did not know about at the time you purchased the home. If a problem is discovered, your title insurer pays the costs to defend your ownership in court, to fix the problem, or covers your financial loss if the defects cannot be fixed.
Examples of Discovered Defects:
Examples of “Hidden” Defects:
The title examination is your first line of defense and should be performed by a trained professional. Purchasing title insurance is your second line of defense to protect against any defects that were not revealed by the examination. As a Seller, your real estate attorney can help correct any defects that arise either by taking the necessary action to clear the defect or by making a claim against your title insurance policy.
The time to purchase an owner’s title insurance policy is when you close on a home. You should also consider from whom you purchase your insurance. A licensed title agent is not an attorney; while he or she can issue title insurance and prepare documents for closing, a licensed title agent cannot give you legal advice, resolve title issues, nor explain the meaning of the documents you will be asked to sign at closing.
The premium for title insurance is paid only once, but the protection continues for as long as you own the home and even after you sell the home. The premium rate is based off the purchase price and can range from a few hundred to over a thousand dollars. Click Here to try our closing cost estimator. Your owner’s insurance policy will be issued in tan amount equal to the purchase price of the property, or in some circumstances, its market value.
In many areas, it is custom for the seller to obtain the title search and pay the premium for the buyer’s title policy (also known s the “owner’s policy”). In other areas, it is customary for the buyer to pay for these services. Whether the seller or the buyer pays for the title policy it should be spelled out in the contract, and no matter who pays for the policy, the reasons for having a real estate lawyer examine the title and issue the policy still apply.
If you are selling your home, you probably already have an owner’s title insurance policy in place. However, it is possible that the buyer’s agent could uncover a hidden defect when you try to sell your home. If this happens, you will want to work with your real estate attorney to address these problems. As the seller, it is your responsibility to deliver marketable title to the buyer. If you do not have an owner’s title policy, you will be required to personally cover the cost of correcting any issues. If you do have an owner’s title policy, any difficult issues that cannot be immediately resolved will be reported to the insurer. Be aware that this may delay closing until the matter is corrected.
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