Don’t Buy Home Without Title Insurance
A home is the single biggest investment that most individuals will make. When you buy a home you wouldn’t think about not purchasing homeowner’s insurance to protect against fire, wind, and theft. Nor would you dare buy a home near water without flood insurance. In fact, if you had a mortgage on the property then the Lender would require that you have a homeowner’s insurance policy and a flood policy if the property was near water. This is because both you and the Lender want the security and peace of mind that comes along with knowing that the property is protected from damage by a policy guaranteed by a major insurance company.
There is also another type of insurance policy that Lenders require when you buy a home. This is title insurance. The Lender receives what is called a lender’s policy of title insurance at closing. This policy insures that it is the only lien on title on the date that you bought the property.
Similarly, you have the option of buying an owner’s policy of title insurance. This policy protects you in the event that you acquire the property with any liens from prior owners still on it or if anyone claims that they are the true lawful owners of your property. This is a unique form of insurance because unlike other policies, you only pay for it once and it insures you against loss for the whole time that you own the property.
At this point you are probably wondering why you need to buy this insurance. As I will point out it is very easy to acquire a property with liens on it from prior owners or to have another person claim ownership to your property.
Your attorney or title company searches the title to the property to see what liens the Seller has on it. Any and all liens are paid out of the Sellers closing proceeds. Let’s say that the Seller has first mortgage for $100,000 and a second for $50,000. The title examiner, being human, overlooks the second mortgage. Since the second mortgage was never paid at closing, when you buy the home you are then responsible for paying off that mortgage. If the mortgage is not paid, the second mortgage company may foreclose on your home.
Another example, where you could lose your home is if the Seller commits fraud on you, your attorney, and/or Title Company. For example, an unscrupulous Seller with a $100,000 mortgage may want to stick you with that mortgage. To do so, all he must do is go to the local Registry of Deeds where the property is located and file a mortgage discharge form. Basically he would forge the signature of his current Lender on a document that proclaims to state that the mortgage has been paid off. When the attorney/title company searches the title to the property they have no reason to believe that there are any mortgages.
In my career I have performed thousands of real estate closings. Some of the worst advice that I have ever heard given to home buyers is not to buy title insurance. The hypotheticals that I listed above are just two of the innumerable ways that you could find yourself in serious jeopardy of losing your home because of a title defect. Title insurance is an invaluable, inexpensive one-time investment that provides you with a lifetime of security.
Buying real estate can be a very technical process filled with insider jargon. Protect yourself and save money by educating yourself, working with an exclusive buyers agent, and having a competent attorney handling your closing.