You’re paying cash for your new home. That’s great! You are not bound by the requirements set by many lenders such as having title insurance, but the reason lenders require title insurance is to protect their interests. It would be wise to follow that thinking and protect your investment as well.
What Is Title Insurance?
Title insurance is a one-time, upfront cost based on the purchase price of the home you want to buy. If you have title insurance, the title company protects you from any claims of ownership against your home.
Types of Policies
Unlike homeowners’ insurance, where both the homeowner and the lender are covered, title insurance only covers the party listed on the policy. There are two types of title insurance policies:
- Lender’s policy – indemnifies the lender
- Owner’s policy – indemnifies the owner
Why You Need Title Insurance
Title insurance protects you from problems with the seller, like forgery of documents, fraud related to the execution of documents, a husband or wife trying to sell property where both of their names are on the title, undisclosed or missing heirs, conveyance by a minor, invalid will of the previous property owner, mental incompetence of a grantor and birth of heirs after the will has been probated.
You are also protected from problems with the property boundary lines, like the previous owner making improvements that encroach past the property lines, violations of building restrictions by the previous owner and unrecorded easements established by use.
Finally, you are protected from undisclosed information, like a lien against the property or money owed from court actions, federal and state statutes, and taxes and assessments.
A Cautionary Tale
Former mortgage underwriter, Athena Paquette, tells the story of a client she once had who paid $100,000 cash for a house in Palos Verdes, CA that was worth $550,000. The buyers were so excited to get a good deal and the seller just “wanted out.”
There turned out to be a good reason the seller wanted out. A year after the buyers moved in, they discovered that the property had IRS liens, a judgement and a loan against it.
The seller had assured the buyer there was only a small loan on the house, and the escrow company they went to just had them sign the deed transferring the property. As a result the buyer was now responsible for all the liens. They ended up losing the money they paid for the house and the house itself.
Owners’ Title Insurance
If you plan on paying cash for a home purchase, you will want to get an owners’ title insurance policy. The policy will protect you as long as you own the property. The premium is payable at closing, and you are required to purchase coverage for the entire value of the property.
If you have questions about title insurance or are interested in purchasing title insurance, reach out to us at 571-234-5589 5589 or by email at [email protected]. We are happy to help!