If you’re a first-time homebuyer, one of the things you should know about is title insurance. What is title insurance and why is it important?
Title insurance basics
When house deeds and other legal documents are drawn up and exchanged, mistakes can happen. Examples of this are improperly recorded documents, missed back taxes, conflicting claims from inheritance of a will, fraud, forgery, encroachments, and others.
Liens also count towards defects since a property with liens cannot be sold until the debts or loans against the property are paid in full. These include mortgage, loans, and easements. This is by far the most common claim filed against the insurance.
Defects like these can lead to threats and claims against the validity and legitimacy of the title. Title insurance protects owners against such claims.
Title insurance is paid for by a one-time payment, for an amount determined by local laws and the price of the property. The payment also covers administrative fees for finding title documentation in the public records and is usually made after the purchase and transfer of the title. In some cases, the seller and buyer of the property split the fee between each other
Types of title insurance
How extensive the insurance’s coverage is and what it specifically protects the owner from depends on the type of policy and the title company. The three most common policies are Basic Lender’s Policy, Basic Owner’s Policy, and Extended Coverage Policy.
Basic Lender’s policies are often required by the lender before they close a mortgage. The buyer purchases the insurance to protect the lender in case the seller of the property can’t transfer their title to the buyer for reasons that include:
- Unrecorded access rights and easements
- Unrecorded liens and mechanic’s liens
- Defects and other unrecorded documents
Basic Owner’s policies cover the buyer and their equity. While a Lender’s policy indicates that a title search has been made, it only protects the lender, leaving the owner still at risk. A Basic Owner Policy is often purchased by the seller for the buyer, and covers the following:
- Defective records
- Fraud and forgery
- Incorrect signatures on documents
- Burdens or judgments
- Restrictive covenants
Extended Owner’s policies (EOP) cover against many more risks that may not have been included in a Basic Owner’s policy, including:
- A variety of forgeries and other encroachments after the title insurance is issued
- Violations of subdivisions
- Building permit violations from previous owners
- Living trusts
- Covenant violations from previous owners
- Damage to the structure of the property from mineral extractions
- Unpatented mining claims
An EOP may involve hiring a professional surveyor to map the property. Any exclusions or specific defects that the policy won’t cover will depend on the policy drawn up by the parties involved.
For how long does the insurance protect me?
The insurance will protect you for as long as you own the property. If you are not planning on holding onto the property for long, though, then you should ask about a title binder. This is a type of legal agreement between you and the insurance company that a title policy will be issued in the near future. It qualifies as insurance for as long as it is valid, usually two years.
A title binder will save you from the cost of an actual title insurance, as you need to pay only around 10% of the rate for a full title. When someone buys the property from you, you can obtain an actual title insurance but at a lower rate, giving you substantial savings.
Want to learn more about title and home insurance? Get the guidance you need from trusted Realtors in the Southern Oregon Coast. Call us at 541.661.3056 or get in touch with us here.