Why Title Insurance Matters More Than You Think

Why Title Insurance Matters More Than You Think

Purchasing real estate is one of the biggest financial investments most people or businesses will make. But before closing on a property, it’s important to make sure there are no hidden issues that could threaten your ownership rights later on. That’s where title insurance comes in.

Title insurance helps protect buyers from liens, ownership disputes, boundary issues, clerical errors, and other problems that may not surface until after the transaction is complete. Whether purchasing residential or commercial property, understanding how title insurance works can help you avoid costly surprises down the road.

The Basics of Title Insurance

When purchasing real estate, it is important to have clear title so that your ownership is undisputed. “Title” is essentially your legal right to use and/or own property. Clear title means that you own the property free of any liens, defects, boundary disputes, or other encumbrances, which may interfere with your ownership rights in the property, other than so called “permitted exceptions” that would be shown on a title commitment and are acceptable exceptions. Obtaining title insurance is the best way to protect your right to use and own property.

Understanding Owner’s Policies and Lender’s Policies

When going under contract to purchase property, the buyer usually has the option to obtain an owner’s policy of title insurance. Title insurance is distinguished from homeowners, landlords, or commercial property insurance. Whether you also obtain any of the previously mentioned policies, such policies do not cover the same issues as title insurance.

Unlike homeowners, landlords, or commercial property insurance, title insurance is a one-time payment, which is usually made on the closing date of the property. The average cost of title insurance is about 0.42% of the purchase price of property. Even if this seems like a significant amount at first, the cost is usually much less than if there would be a title issue on your property and you did not have coverage. Resolving title issues can often cost thousands of dollars in legal fees, not to mention the tragic consequences that can arise in title that may not have any satisfactory resolution, such as a total failure of title.

Lenders usually require their own title insurance in a transaction. However, a lender’s policy is separate from an owner’s policy. Owners cannot rely on a lender’s policy to protect them as a lender’s policy only protects the lender’s interests.

Who Pays for Title Insurance?

Depending on the location of the property you are purchasing, the cost to obtain title insurance may be the responsibility of the seller or the buyer. In certain regions, the seller may pay the cost for a standard owner’s policy while the buyer is responsible for any endorsements to the policy. Ultimately, the allocation of the cost is negotiable but regional trends tend to control.

What Are Title Insurance Endorsements?

Endorsements are amendments to the title insurance policy that modify or expand the coverage of your title insurance. Each endorsement has its own cost and depending on the condition of title for your property, you may want to request certain endorsements. Some endorsements include ensuring that the land is properly zoned; protecting owners against covenants, or existing encroachments; ensuring the property has access to a public road; and more. A good real estate attorney can make recommendations on what endorsements would be wise and also to help obtain a title insurance policy that is most advantageous to the buyer.

The Title Examination Process

If you elect to obtain title insurance, the title company will order a title examination and produce a title commitment that will show all matters that affect title to the property (sometimes referred to as “clouds on title”). Note that a title examination only looks at the public records and often will not report any unrecorded documents or claims against the property, fraudulent information or conveyances, or clerical errors. However, the right title insurance product can protect against such errors, which may not be of public record.

When reviewing a title exam, an attorney can assist you in looking for any issues that may present a question to your ownership of the property. If mortgages, uniform commercial code (UCC) filings, or other similar lender documents are of record, these are usually paid off at closing by the seller.

Common Title Issues That Can Affect Property Ownership

Other encumbrances can include mechanics liens, which may be filed by contractors performing construction on the property; tax liens for unpaid state or county taxes; or even liens for unpaid child support. If you are purchasing property within a subdivision, it is also important to be aware of any declaration of restrictive covenants, which may exist against the property. In most cases, such covenants cannot be removed against the property as they are usually part of a general scheme of development and equally apply to all properties within that subdivision.

If there are any outstanding issues that could affect your ownership of the property, an attorney can work with you to address the issues with the seller. The seller usually has the option to either resolve/remove any of the title issues or refuse to take action. At that stage, you can decide whether or not to move forward in purchasing the property.

Finalizing the Title Insurance Policy

If you ultimately decide to move forward in purchasing the property, a final title policy will be issued to you after closing, but effective on the date the deed is recorded for the property.

Why Title Insurance Is Worth It

Whether purchasing residential or commercial property, Strauss Troy always recommends obtaining title insurance. Simply put, it is better to have peace of mind about your ownership of the property, having it protected against any matters, which may bring your ownership rights into question. If you have any questions about title insurance, reviewing title examinations, or other related real estate matters, please feel free to contact Austin M. Tinsley at 513-768-9709 or amtinsley@strausstroy.com. Austin regularly handles both commercial and residential real estate transactions, and is licensed to practice law in Ohio, Kentucky, and Indiana.