What you need to know about title insurance is a lot. What is title insurance anyway? To put it in one word, it’s safety. I believe that title insurance is one of the most misunderstood aspects of home buying.
Let me ask you this. How many of you hear about title insurance while you’re looking for a home? I doubt you do. Because agents are not really taught about it, they don’t explain how important it is to buyers.
Going online, do you see headlines on any of the major websites about title insurance? The answer is you don’t. You’ll see ads for mortgages, home inspectors, termite companies etc. You won’t see anything about title insurance.
Why Title Insurance Takes A Backseat
When you’re shopping for a home what do you look at? First and foremost it’s homes, right? Of course it is. You pour over pictures of houses, condos, 2-4 families or coops.
Next you start to look at the towns, your commute to work and if you have children or planning to, schools. This makes sense doesn’t it?
As a result, the actual process of buying a home isn’t your focus right now. Title insurance, appraisals etc really aren’t a concern. However what you need to know about title insurance is very important.
What Is Title Insurance For Anyway
Title insurance protects you against defects in your title which create a financial loss along with legal expenses required to defend your ownership rights.
When a house is purchased, that sale becomes a public record. Any recorded liens on the house, like a mortgage, become part of the home’s public record too. Your title company does a search through all the public records for any claims against the house. Once your new home’s title is deemed insurable, a title policy is authorized.
Sometimes mistakes happen or there are hidden claims not part of the public record. Here’s a hidden claim example that happened a few years ago in Oradell:
A seller never disclosed to anyone that he had 3 private loans as liens against his house on top of his mortgage. At the closing, 3 men showed up demanding checks from the proceeds. This seller had planned to fly overseas from the closing. Because there wasn’t enough money to pay off everything, screaming started followed by a fist fight. The police had to be called in. What a mess. Fortunately for the buyer, the closing had not yet begun. One of the lawyers I work with told me about this.
Because liens are on the house and not the owner, they stay attached to the house. As a result, if liens are not cleared out when you buy your home, you just bought those liens too. Title insurance protects you from all sorts of defects.
Lenders Policy & Owner’s Policy
Most people don’t know that the title insurance they see on a closing document isn’t for them. It’s not for you. While it’s protection, to be sure, you really need an owner’s policy in addition to a lender’s policy.
A lenders policy provides no insurance at all to you. It insures that the lender has a legitimate and enforceable lien for the mortgage on your home. Owner’s policies insure you for loss and legal expenses if defects are found in your title.
Here is where it’s more than worth the small extra you pay for a great real estate attorney: Excellent attorneys don’t shove transactions through. They make sure of all the details. They carefully read the title search reports and have you get an owner’s policy. I see a lot of closing documents that don’t have an owner’s policy listed.
Title Insurance Costs
First you need to get a title search. That’s a few hundred dollars typically – often no more than $500. New Jersey has a unique approach to what title insurance actually costs: New Jersey tells the title companies what they can charge. It’s based on the sales price of the house. Because this system is NJ State dictated, it doesn’t matter which title company you use. The cost for the insurance is the same.
Weichert Title is a big company focused on our customers. Because we are, we’ll do the title search right away for you. If there are problems that come up, it’s usually early enought to fix them and close on time. Should you not buy the house, as a Weichert customer, you won’t be charged for the search.
I hope this answers your questions. If not or you need the name of a great attorney, give me a call at 201-741-8490.