Knowledge Base

What is Home Title Insurance?

When buying a house, among the most important steps, you must take involves getting a title. This legal step often shows that you have bought the right of ownership from the property seller.

But what will happen if your sale has a financial or legal problem?

The new property may cost you more money than the buying price in the unforeseen complications. According to realtors in Houston, TX, this is where title insurance comes to play.

What Title Insurance Is

It refers to a policy covering claims of third parties on properties that arise after real-estate closing or didn’t appear in the first title search. Third parties can be anyone other than property owners, like a construction firm, which wasn’t paid for its work.

Title claims may arise anytime, even when you have owned property without problems for years. This can happen when another person has the right of ownership, which you don’t know when making an offer to buy the property. Even current owners may not know that another has a title claim on the same property.

Before a home loan closes, a mortgage provider will ask for a title search from a reliable company. The company will look into public records associated with your home to find title defects, which can affect the buyer’s or lender’s rights, like the following:

  • Encumbrances
  • Easements
  • Liens

How it Works

Mainly there are two forms of title insurance. They can be bought by one party to protect another party. These types include owner’s title insurance and lender’s title insurance.

Owner’s title insurance is designed to protect buyers from all title issues, and the seller often incurs their expenses. This is optional by a common form of title insurance.

On the other hand, borrowers buy lenders’ title insurance to protect mortgage providers. Typically, all mortgage providers need them. Because lenders take the biggest share of financial risk, they would want to be sure that their investments are protected in the case of unforeseen title issues.

Who Needs Title Insurance

Lenders and buyers need title insurance to protect themselves against all possible title defects. The lender, seller, and buyer all benefit from this policy.

Some defects that title insurance covers may include easements, encroachments, liens, forgery, fraud, ownership interest, and improperly recorded documents.

Acquiring Title Insurance

Legal documents like title certificates or deeds often represent property ownership. Legal titles enable one to dispose of or control the property.

There are several ways by which an individual may acquire a title, and the law differs from one state to another. One of the common ways includes sole ownership. This happens when one individual holds a title, and it’s mostly used by a person who is single. But in other cases, married individuals may opt for sole ownership when one spouse is ready to sign documents renouncing his or her rights to the asset. Other ways of acquiring a title may include the following:

  • LLC and partnerships
  • Trusts
  • Community property

Last Words!

Although a title issue cannot always pop up, when things go out of hand, it can be expensive and a great risk to the investment. This is why it is best to consider the benefits and risks of title insurance before you choose any policy.