If you’re about to purchase a home, you’ve probably been told to get title insurance. But what exactly is title insurance—and do you really need it?
What is title insurance? Title insurance protects you, as the owner of the property – and your lender, if you have a mortgage – against any defects in the title to your property, or any contrary claims of ownership that might arise. Before you close on your home, your attorney or settlement agent will complete a title search or title examination on the property. This is an examination of the title records available in the county where the property is located, and it’s done to ensure that you’re getting "clear title" (valid ownership) to the property you’re buying. Title insurance provides coverage for issues or disputes of record which could impact your ownership rights.
What do title searches reveal? A title search often reveals liens on a property from prior owners which may include mortgages, unpaid property taxes, judgments, and searches also reveal recorded road or utility easements. The "chain of title" found in the title exam shows all property transfers in the past – that’s past owners’ names and the dates of transfer of ownership. In communities with homeowners or condominium associations, there are often recorded restrictions that govern your use of the property.
Title insurance fees? Fees can vary widely, depending on the price of your home, the amount of your loan and your location. The good news: you’ll only pay once for title insurance, and it remains in effect for as long as you own your home. Jeremy Yohe, a spokesperson for the American Land Title Association (ALTA), a trade group, says that buyers should expect to pay about one-half of one percent of the home’s purchase price. There are national and local title insurance companies; some of the nationals are First American Title, Old Republic Title and Stewart Title.
Beware of closing scams! If you’re about to close on a home purchase, be aware of a scam that’s become so common that the Federal Trade Commission recently issued a consumer advisory. Here’s how it works: Scammers hack into the email accounts of homebuyers or real estate agents to learn about upcoming transactions. The hacker then sends an email to the buyer—posing as the real estate agent or title company—and provides the buyer with fraudulent wiring instructions. Buyers who fall for this scam and wire funds usually lose their closing funds. If you’re buying a home and get an email with wiring instructions, contact your closing agent immediately. Do NOT call the number contained in the email, as that could be fraudulent as well. Verify the settlement agent’s phone number online AND through your real estate agent. Make sure the phone number is valid. Settlement agents and closing attorneys also use "Secure Email" when sending closing documents and wiring instructions. Emails regarding your home closing which are NOT secure (do not require User I.D. and Password) are a red flag that the communication may be a scam.
Additional resources: For more information on title insurance, or to shop for a policy, visit www.homeclosing101.org, which is ALTA’s consumer website.