What is Title Insurance?

When a mortgage is obtained to purchase a property and in some cases during a refinance, your mortgage lender will require you to pay a title insurance fee. This fee is normally paid one time, in full to help ensure the lender’s interest in the property is secured. However, what many homeowners do not know is that title insurance may not protect their interest.

What is title insurance?

Title insurance guarantees that the title to a home is free of “defects”. Defects include a liens from prior lenders, mechanics liens and claims of ownership from prior owners. There are three types of title insurance including:

  • Owner’s Title Insurance
  • Lender’s Title Insurance
  • Extended Owner’s Coverage

The cost of title insurance

Title insurance is paid one time and is paid on a per $1,000 rate. In Florida, the rates are set by the Florida Department of financial services. However, in most cases, it is important to ask at the time of closing whether the policy you are paying for covers your interest as the homeowner or covers only the interest of the lender.  Getting an owners policy will protect the home owner from any future claims.If a policy only covers the lender, there is still a chance that you could lose thousands of dollars should a dispute arise. For the small amount that it would cost for an additional policy, you could save thousands of dollars.

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What the policy covers

When you purchase a home, whether it is newly built or is an existing home, chances are there was at least one lien put on the property. These liens are supposed to be paid prior to the home transferring ownership and reported to the registrar of deeds for proper recording. In most cases, this happens seamlessly and there is no problem. However, from time to time, the paperwork is lost or is not recorded properly. This is when a title policy comes in handy. Other defects in title include

  • Mechanics liens – When someone has done work on a home and not received payment, they may file a mechanics lien against the property. If this lien is not discharged, they could ask the new owner to pay the lien.
  • Claims by heirs – When you buy a family home, sometimes heirs are unaware the home was sold. These claims, though not common, could cost thousands of dollars to prove.
  • Wrong descriptions – Property lines are typically included on a property title. When this is recorded incorrectly, abutting property owners may claim parts of your property as their own. Title insurance can help protect against these claims.

Work with your lender to determine what your title insurance covers. Make sure that you have the coverage you need, especially when you are buying a new home.

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This blog is for informational purposes only. We advise to consult your attorney or title company for current compliance. NMLS #849597

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