6 Questions You Should Ask About Your Title Insurance
When the ownership of a property is transferred to a new person after a purchase, title insurance is what protects that buyer (and the mortgage lender) from any problems with the title. If a dispute about the title arises, it is the insurance company’s responsibility to pay certain legal damages (depending on which policy you have).
To issue title insurance, the title company has to do their research through the property records to confirm there are no unpaid taxes, undisclosed heirs, legal actions pending, fraud, errors, or any other problems. The title has to be clean. This way the title company can verify that the seller truly owns the property and can sell it.
After this, the title company works with an underwriting company in order to issue a policy that will defend you if someone decides to challenge the title. If you lose, your equity will be compensated. Homeowners usually need two separate title insurance policies so that both the owner and the lender are protected.
Here are a few questions you will want to ask about title insurance:
1. Are the prices regulated?
In most states, title insurance prices are regulated so you won’t find much of a difference when comparing them. However, comparing the quality of the title search and the quality of the insurance is recommended since these can vary greatly.
Always be sure to ask about the complete transaction price as well because courier fees or wire transfer fees in addition to the regulated costs can add up after awhile.
If you happen to be in an area where title insurance costs are not regulated, you should shop around for a bit and compare costs because they can vary by 10 and 20% (sometimes more). If you don’t know if you are in a cost-regulated area or not, you can always ask your lender or the state insurance department.
2. How much coverage do you need?
Title insurance policies for owners will normally protect them from fraud, forgery, spousal claims, and undisclosed heirs. Adding more coverage will increase the cost, but sometimes lenders will require extra coverage.
3. Who pays for the title insurance?
The one responsible for purchasing both the owner’s and lender’s policies will vary depending on the state or county you are in. Sometimes the buyer will pay for one policy and the seller will pay for the other, but the cost is negotiable, and the buyer can always go back and forth with the seller about some or all of the cost until an agreement is reached. However, if both policies are bought from the same company this is usually a significant discount.
4. Does the seller want to push a certain company?
If you are the one paying for the title insurance, then you get the right to decide which company it is from. If you aren’t paying, but choosing the company is important to you, expect to share a portion of the cost. Don’t immediately agree to go with the title company that the seller wants either. A title search is intended to discover any errors before the home purchase, so to get the best results it is better to choose a title company that is different from the one the seller has used in the past. This way, with no previous records to go off of, the new title company will be thorough and discover any problems that need to be fixed before you buy the home.
5. Who do I trust?
If you have to choose between the advice of your real estate agent, the seller, or the mortgage lender, go with your lender. Your mortgage lender is just as interested in making sure this part of the process is done well, because they are trusting that the property that is going to be used as collateral on the loan is legally yours.
6. How much reassurance is needed?
If you want to confirm that your bank and/or insurance company is financially strong, you can look up their ratings from companies who research the financial soundness of other companies. You can also look up the title company and underwriting company online to see if their previous customers have been pleased with their services.