Closing day is an important milestone in the homebuying process, marking the point at which the transaction is finalized and ownership changes hands. After settlement, the title serves as the legal representation of your ownership interest in the property.
Even after the sale is complete, title-related issues can sometimes surface unexpectedly. Title insurance is a type of indemnity policy that can help safeguard your ownership interest should this occur.
What Does Title Insurance Protect Against?
While many title issues (often called title defects) are detected and addressed before settlement, some problems can surface weeks, months, or even years after you close on your home.
Before closing, a title search is typically conducted to identify title defects, which could prevent the proper and legal transfer of property ownership from the seller to you, the buyer. These defects may include factors like:
- Errors or omissions in public records
- Unpaid liens or taxes
- Judgments
- Undisclosed heirs
- Improperly probated wills
- Forgery or fraud
- Boundary disputes or land rights
- Other ownership claims against the property
Why Title Issues Can Arise After Closing
Title professionals work to discover and resolve any identified issues in the weeks leading up to the closing appointment. However, a title search cannot detect and eliminate every possible title risk.
Depending on the circumstances, and the type and terms of the policy, title insurance may provide financial protection against certain covered losses or help defend your ownership rights. Title resolution may also require legal assistance and other resources.
Lender’s Title Insurance vs. Owner’s Title Insurance
There are two main types of title insurance: lender’s insurance and owner’s insurance.
Lender’s title insurance protects the mortgage lender’s financial interests should the loan become unenforceable. Most lenders require borrowers (homebuyers) to purchase lender’s title insurance.
Owner’s title insurance protects the homebuyer’s financial interest in the property (according to the terms of the policy). While not required, it’s often highly recommended.
There are different forms and coverage levels of owner’s title insurance, which can vary by insurer, state, and policy type. They are generally distinguished between:
- Standard owner’s policies – Provide basic coverage for certain title defects that existed prior to the policy’s effective date.
- Enhanced owner’s policies – Provide broader coverage than standard policies, potentially covering additional types of defects that develop after you’ve purchased the home.
Both standard and enhanced policies can vary in terms of coverage amounts, endorsements (policy add-ons or amendments), and other factors.
Protection That Continues Beyond Closing
Buying a home is one of the largest investments many people make. Title insurance can help protect that investment against certain title-related issues that may arise after the transaction is complete.
Understanding title insurance coverage and the available options before closing can help you make informed decisions about protecting your investment. To learn more about title insurance, contact the team at Linear Title & Escrow.
