Buying a house involves lots of decisions, considerations, and, of course, paperwork. One key piece of the process that can get lost in the shuffle is not only purchasing title insurance but also understanding what exactly is title insurance. So let’s start with the basics: what is title insurance? Below we have compiled some #title101 questions for homebuyers using concise language that all real estate agents can use when breaking down the basics for their clients.
What is title?
Title is a homebuyer’s ownership rights to his or her property.
What is title insurance?
Title insurance is a policy that protects a homebuyer’s investment and property rights. There are two different types of title insurance: owner’s policy and lender’s policy.
- Typically, an owner’s policy is purchased by the homebuyer. This varies by state, however. In Michigan, an owner’s policy is purchased by the seller for the homebuyer. While it is the homebuyer’s choice, purchasing an owner’s title insurance policy is the best way to protect his or her interests.
- Who does it protect? The homebuyer is covered as well as their trustees, inheritors, and beneficiaries.
- A lender’s policy is usually paid for by the homebuyer or seller. Again, this practice varies by state. In Michigan, the homebuyer typically pays for the lender’s policy. It is almost always required by the lender and protects only the lender’s interest.
- Who does it protect? Only the lender is covered by the lender’s policy.
Why purchase owner’s title insurance?
A home is the largest investment a person will make in their life. Owner’s title insurance is the smart option that protects a homeowner’s property from legal claims. It’s a one-time fee that covers a homeowner and their heirs as long as they own the home. The owner’s policy also covers potential legal fees for settling claims against ownership rights
What is a title search?
A title search is an early step in the home-buying process to uncover issues that could limit a buyer’s rights to the property.
What does owner’s title insurance cover?
Under the owner’s title insurance policy, a homebuyer is protected against any unforeseeable errors in the title. Common errors include:
- Forgery: making a false document; for example, the seller misrepresents the identity of the person who signed the title.
- Fraud: deception to achieve unfair gain; for example, someone steals your identity and either sells a house without the owner’s knowledge or consent, or takes out a second mortgage on the property and walks away with the money.
- Human Error: inconsistent paperwork and historical records; for example, an unforeseeable discrepancy in the property or fence line can cause confusion in tracking the title history.
How long are you covered?
Your owner’s insurance policy lasts as long as the buyer and his or her heirs own the property.