what is a clear title?
Clear title means that a property is free of any encumbrances, encumbrances, or title defects that could cause legal ownership disputes. Defects or liens, such as a mortgage, unpaid property tax, municipal lien, code violation, legal description mismatch, or misspelled or mismatched owner names, among other issues, can raise questions on legal property. when there is a clear or good title, there are no legal defects, and the current owner of the property is evident and clear.
why do I need title insurance?
title searches are not perfect. It’s not often that these exhaustive searches miss something, but it does happen. and you need to be protected from others claiming ownership of your property months (or years) in the future.
Consider this scenario. You enter into a contract to purchase a home, the title search comes through, and then you close on the purchase of the property. a few months later, someone shows up claiming to be the older brother of the previous owner. they claim the property was left to them in a will and should never have been sold.
While situations like this are not all that common, it is extremely important to have title insurance in case they do happen. Your title insurer will typically cover things like property disputes, document forgery, and restrictive covenants that were previously unknown. They can also protect you from unknown liens and judgments against the property, just to name a few examples of title defects.
how does title insurance work?
There are two main types of title insurance. both are typically purchased by one party to a real estate transaction for the protection of another.
Lender’s Title Insurance – Borrowers purchase this type of title insurance to protect their mortgage lenders. virtually all mortgage lenders require it. Since the lender typically bears most of the financial risk in a home sale, he wants to know that his investment is protected in the event of unforeseen title problems. If you’re buying a home without a mortgage, you won’t have to worry about paying off a lender’s policy.
Owner’s Title Insurance – Is designed to protect the buyer from title problems, and the expense is generally incurred by the Seller. this is an optional but very common type of title insurance.
title insurance is not cheap. For an owner’s title policy, the title insurance premium can easily exceed $1,000. but this may be a small expense compared to the cost of finding out that someone else legally owns the property. or compared to discovering years of back taxes that were not found in the title search.
Both types of title policies are typically purchased during the course of a real estate transaction and will provide sufficient coverage to ensure that neither the buyer nor the lender suffers financial damage if a title issue is found after the transaction. close.
what if I don’t have title insurance?
If you use a home loan to buy the property, your lender will have title insurance. This is true whether you’re buying the property or refinancing it for cash or to take advantage of lower refinance rates. (See our beginner’s guide to home loans for more general questions about the mortgage process.)
But if the seller doesn’t purchase owner’s title insurance for you, it could be a costly mistake if problems are discovered later. For example, if there turns out to be a $10,000 judgment against the property that the title search missed, say the previous owner never paid a contractor for the work done, and the contractor sued, the title insurance on the owner would probably take care of the expense (if legitimate). But if you don’t have title insurance, you could be forced to pay for it out of pocket or risk losing the property to foreclosure.
In summary, post-closing title problems are not common. however, real estate transactions involve large sums of money, and your mortgage payment is likely to be your largest recurring expense. Check out our mortgage calculator to see how much a home could cost you.
It’s important to make sure you’re protected with title insurance. If you plan to buy a home, the best practice is to insist that the seller purchase title insurance from a reputable title insurance company for you. and be sure to check that it is in place before you sign your closing documents.
still have questions?
Here are some other questions we’ve answered:
- what is mortgage insurance?
- what is a conditional loan approval?
- what is an assumable mortgage?