For this blog post, I wanted to tackle the topic of title insurance …. What is it? Are you required to buy it? If not, should you bother, or just save the money? Questions about title insurance usually come up as home buyers are getting ready to go to settlement on the purchase of a new home. But if you already own your home, chances are you purchased a policy but maybe forgot about it, so this post may serve as a helpful reminder of the purpose of such policies.
Title insurance insures the policy holder against certain “clouds” on title, financial losses associated with title issues, and other issues affecting the clear and marketable title to a property that may only become known after settlement. Click here to see the 10 most common types of title claims. A policy to protect the lender (“lender’s title insurance”) is mandatory if you are financing your home purchase – the lender will require the home buyer to purchase such a policy up to the loan amount as a condition of getting the loan. However, a title policy to protect the home owner is in fact optional.So, since it is optional, should you buy title insurance to cover your own interests? My opinion is that it is wise to be covered. If a title issue should come up, chances are that the one-time cost of the policy will be FAR less than the costs incurred (in terms of money, time and stress) to resolve the issue.Before going to settlement to purchase a home, the title company that conducts your settlement will do a thorough “title examination” to determine if title to the home is “clear and marketable” or if there are issues that need to be resolved in order to convey clear title. But even a thorough search can miss something. Some issues are not able to be ascertained in a search, since sometimes they were not timely recorded or they were mis-recorded. Sometimes there are issues of some duress or forgery on documents in the chain of title, like on will or a deed. Perhaps it is an issue of a serious encroachment on to your property by a neighbor, or perhaps it is your property that is encroaching on a neighbor. Any such defects will need to be resolved in order for the home owner to assert and protect their ownership stake in the home, as well as to be able to convey clear marketable title to a buyer. And yes, there are some defects that may not be able to be resolved and may result in severely reducing the marketability (and thus value) of the property. Title insurance might protect your interests in these cases, but it may depend on the level of coverage you purchased. Coverage options for a home owner’s policy include a “standard”/“limited” policy or an “enhanced” policy. The enhanced coverage costs a bit more but also covers more types of claims, including some post-purchase events. Click here to see a comparison of what each policy will cover.The cost of title insurance is often regulated state by state and can vary by jurisdiction. The cost is calculated based on the purchase price of the home. For example, here’s what a policy might cost today for a $1,000,000 home purchase in different locations in our region**:
* Washington DC: $2382 (Enhanced); $2010 (Limited)* Montgomery County, MD: $1715 (Enhanced); $1480 (Limited)* Arlington, VA: $1926 (Enhanced); $1630 (Limited)**SOURCE: FederalTitle.com “CloseIT™” app. Provided for illustrative purposes only. Please contact your title insurer/settlement company to determine what your own title insurance policy premium would be.Pro Tip: You can sometimes receive a discounted “re-issue” rate on your title insurance policy IF the Seller’s title policy is under 10 years old (subject to some exceptions) and the Seller is willing to provide a copy of their title policy. So it is definitely worthwhile to request the Seller’s policy.So, what do you think? Is it worth it? Chances are that most home owners will not have cause to make a claim under their title policy, but if you ever have a claim, you will be very happy to have the coverage.Let me know if you have any questions about title insurance or anything else related to the home buying (or selling) process.