Q: I have a quick question. When should a buyer ask for title insurance on an all-cash transaction?
A: You should plan to buy an owner’s title insurance policy whenever you purchase property to protect yourself against possible loss from title issues that may crop up. If you need a loan, your lender will require you to purchase a lender’s title insurance policy as a condition of funding the mortgage.
The interesting part of your question is that in some parts of the country, the seller is obligated to obtain and pay for an owner’s title insurance policy for your benefit. You would, however, still have to pay for the lender’s title insurance policy if you were to purchase the property with lender financing.
Talk to your escrow closing agent about purchasing a policy.
You should know that you take the risks when purchasing real estate, and without a title insurance policy you could lose all the money you put down to buy the property.
For example, an owner’s title insurance policy protects you from fraud in case the seller actually does not own the property you are buying. It can protect you from the risk that mechanics’ liens that might be placed on your home stemming from home improvement projects your seller completed on the property. And, it protects you from title defects that could result in the loss of the property.
In addition, having a title commitment – the document that is given to you in advance of the closing that becomes a title insurance policy – gives you information as to the status of your property.
It will inform you of any easements that affect the property and other documents that affect the title to the home. With this information, you’ll have a better and more complete picture of the home you’re buying and can decide whether to close or not if something that has been disclosed to you on the title commitment affects the future marketability of the home.
In some parts of the country, homes are sold on leased land. A title commitment would tell you how much time is left on the lease. If you find out only 5 years are left on the lease, would you still want to pay the same amount for the home?
What if you found out before the closing that the beach access that you were promised wasn’t part of the deal? Or what if you didn’t know that other people had rights to cross your land to take care of an easement area behind your home and that their work will interfere with your use of the back yard each year?
The more information you have about the purchase of a home, the better off you are. Once you have that information, the title company is bound to protect you if other issues pop up on the title that were not disclosed to you.
Please take the time to educate yourself about the issues that might affect the title to your new home and purchase an owner’s title insurance policy when you buy the home.
For more information on title insurance, take a look at our title insurance videos: