Title Insurance.
When it comes time to insure the title, it’s important to note that there are two different types of title insurance: a lender’s title policy and an owner’s title policy.
Lender’s Title Insurance
- Unless the previous home is owned free and clear, the current homeowner will have a mortgage lien on the property. This will need to be paid off at closing so that thx||e title can be transferred to you.
- It’s important to realize that while it’s required, lender’s title insurance doesn’t protect the homeowner or their existing equity in the home.
- The lender’s title insurance policy premium is typically purchased by the buyer, but there are some real estate markets where the seller pays in accordance with local custom.
How Title Insurance Works
Let’s say someone makes a claim to your property and they succeed in showing that the seller who transferred the property to you didn’t have the authority to do so.
For example, your home was built on property that was part of a farm 50 years ago. In their original will, the farmer split property ownership equally between their two children. However, in a later will, they disowned one child in favor of the other, who sold the farm to a developer.
Later, the disowned child finds proof that their sibling exerted undue influence on the farmer when the second will was executed and brings a successful lawsuit to restore the first will. Now, they could have a claim to the property you’ve purchased in the interim.
Title insurance will cover your legal costs and will reimburse you for any losses due to title issues. You could choose to forgo title insurance and sue the previous owner, who made warranties regarding the title at the time of transfer, but you’d have to find them first and then bear the expense of bringing a lawsuit against them.