When buying a home, one of the many required steps in the process will be receiving title. This legal concept will demonstrate you have ownership of a property and the legal right to control, use, or sell it.
When a property changes hands, the title that the new owner receives will include the property’s ownership history, including all past transfers, uses, and restrictions. A buyer is not only purchasing the home but also its legal history, and after the closing, the new owner becomes responsible for whatever is on the land records.
In some cases, title defects and claims against the property can cost owners a great amount of money. This is where title insurance comes in.
It’s highly recommended but not required that buyers purchase a owner title insurance polaicy at the time of closing to protect themselves against this risk.
Let’s go over the basics you need to know about title policies.
Types of Policies and what they cover
There are two types of title insurance you should be aware of:
- The Owner Policy, which protects the homeowner and the homeowner's heirs.
- The Lender Policy, which protects the mortgagee (lender) and its assigns.
These two policies are separate and distinct, but they have the same purpose of protecting participants of the transaction from potential financial losses in the event of a title defect.
If you are taking out a mortgage, lenders will always require that you purchase a lender policy. An owner policy, on the other hand, is not required but highly recommended, as it is a one-time fee that will protect a buyer from title disputes for the duration of their ownership.
What an Owner Policy Covers
The exact coverage and protection that your policy will provide could vary, so it’s important to read the fine print, but in general, an owner policy will cover the following commons risks and issues:
- Ownership claim disputes involving ownership claims
- Defects in the title, including liens or encumbrances
- Inaccuracies or errors included in public records, including honest mistakes like incorrect signatures
- Fraud and/or forgery
- Any undisclosed easements or other agreements that could limit usage or reduce the value of the property
You should consult with your attorney if you have any questions about your policy and its implications for your particular situation.
What a Lender Policy Covers
A lender policy similarly protects the lender’s interests in the event of the aforementioned title issues. It’s important to keep in make in mind this lender policy, however, will not protect the owner against financial losses when an issue arises, as only an owner policy will do that.
How much does title insurance cost?
Buyers pay a one-time, up-front fee for title insurance as part of their closing costs.
The cost of the lender policy will be based on the mortgage amount, while the cost of an owner policy is calculated based on the full sale price. The exact cost of your title policies will also depend on the type of policy and how much coverage you receive.
As a general rule, you should budget to pay at least between .3% and .5% of your mortgage amount on a lender title policy. If you opt to bundle an owner policy with the lender policy, most title companies will either charge no additional cost or a heavily discounted cost.
When you apply for your mortgage, your lender may be able to give you an estimate of the premiums that will be charged for both the lender and the owner policy. You should consult with your attorney to get the exact premium amount that will apply.
When do I purchase a title policy?
Buyers purchase their title policy at the closing as part of their closing costs. In Connecticut, attorneys issue the policy on behalf of the title company, whereas in some other states, title companies conduct the actual closing.
Need an experienced real estate attorney for your home purchase?
At Pederson Real Estate Law, attorney Charlene Pederson has over 25 years of experience guiding Connecticut clients through residential real estate transactions. If you need an experienced, attentive attorney for your closing, reach out today for a free consultation.
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