There are so many misconceptions about title insurance and we thought it was time to set the record straight. If you have additional questions, give us a call today! 1-800-340-1993
Myth: Title Insurance is not necessary for a new construction.
The Facts: Lender’s Policies are always required if you have a mortgage, Owner’s Policies are optional. Even if you purchased undeveloped land in cash, and are building a new home, you should strongly consider title insurance. You may think that you are the first property owner, but chances are there were many prior owners of the unimproved land. A title search will uncover any existing liens and a survey will determine the boundaries of the property you’re purchasing. Purchasing an Owner’s policy will protect you from any uncovered issues. For example, if a builder failed to pay subcontractors and supplies this could result in the subcontractor or supplier putting a lien on your property.
Myth: I have to use the same title company my lender uses.
The Facts: As the buyer, you have the right to choose any title company and you should choose one carefully. Even if your agent or builder has an affiliated title company, the Real Estate Settlement Procedures Act (RESPA) protects your right to shop around for a different title company. For more information see our related blog: Finding the Right Title Company.
Myth: Title insurance carries over from the seller.
The Facts: If there is a new owner that means new search and new title insurance policy. A new order purchases their own title policy that insures them, but that coverage will not continue when they transfer title to you. Luckily, it’s only a one-time payment! So once you close and pay for it, you don’t have to worry about it again.
Myth: There is only one type of title insurance.
The Facts: There are actually TWO types of title insurance; lender’s title policy and owner’s title policy. If you are purchasing a property and taking out a mortgage you are likely to get two types of insurance. (There is also insurance for leasehold interests and mortgage modifications so there are technically more than 2 types of insurance)If you have a mortgage, the lender policy will protect the lender up to the amount of their loan if in the event that the owner forecloses on the house or is not able to pay back their loan. The owner’s policy provides coverage up to the purchase price of the property and protection for the homeowner in case someone threatens their right to the property. While it is always mandatory to purchase a lender’s policy it is not mandatory to purchase owner’s policy, but it is highly encouraged that you purchase an owner’s policy as well.
Myth: Title insurance is the most expensive of the closing fee costs.
The Facts: According to the Government Accountability Office (GAO) report on the title insurance industry, title insurance comprised 4 percent of all closing costs. The cost for title insurance is a one-time fee, as opposed to other lines of insurance that charge a monthly, quarterly or annual premium. When you consider the size of the asset protected by title insurance and amortize the payment for as long as a consumer owns their home, title insurance is among the best values of costs associated with a real estate closing.
Myth: Title insurance only protects against a handful of title faults.
The Facts: Purchasing our Enhanced Title Policy covers a wider range of coverage to a Standard Policy, such as inflation protection, fraud and forgery protection, easements, boundary line protection, zoning, subdivision, and building permit violations, expanded insured, future encroachments, a reversion of title, and legal fees. While a standard policy is suffice, an enhanced policy covers post-policy issues mentioned above. See the differences here: Coverage Comparison.