The Importance of Title Insurance
A home title is an essential part of a real estate transaction. If a title is not cleared of encumbrances, such as liens, unpaid debts, or legal disputes, the purchase or sale could fall apart, which could impact your ability to secure housing or prolong the home buying process.
Title insurance plays a critical role in real estate transactions by helping real estate agents, real estate attorneys, and potential home buyers identify and resolve title issues. According to the American Land Title Association, approximately 36% of real estate transactions in the United States have complicated title issues that need to be resolved before the transaction can be completed.
If you are looking to purchase a home in New Jersey or are considering selling a property, it’s important to understand how title insurance can protect your interests and help you overcome disputes that could impact your real estate transaction. Contact our attorneys at NJ Real Estate Law Group today to schedule a free phone consultation.
What Is Title Insurance?
Title insurance is a policy the home buyer takes out to protect them, the seller, and the lender from potential financial loss due to property issues during or after a real estate transaction, such as unknown liens, encumbrances, ownership claims, or legal disputes. The two primary types of title insurance policies include owner’s title insurance and lender’s title insurance.
Owner’s title insurance: Designed to protect a homeowner’s investment and ownership of the property for the duration they own the home. This policy is optional, but frequently recommended.
Lender’s title insurance: Designed to protect the lender or mortgage company when you take out a home loan. Banks and lenders typically make this policy mandatory for home buyers to take out when getting a mortgage.
Whereas regular insurance policies are designed to protect you in the event of a future event, such as property damage or an accident, title insurance is designed to protect against past issues and claims. Title insurance is typically paid by the buyer and is often included in the closing costs of a real estate purchase.
What Does Title Insurance Cover?
Title insurance provides protection against unknown or hidden issues with your property, often covering the legal defense costs and financial losses that occur due to hidden claims or defects that existed on a property before you purchased it.
Undisclosed liens: Debts that were left unpaid by the previous owner. This can include old mortgages, unpaid taxes, and bills from contractors or renovation work.
Unknown property heirs: Claims that arise from unknown, unrecognized, or missing family members of a previous owner who state that the property belongs to them.
Fraud & forgery: Documents that arise from a previous sale that were fraudulent, forged, or included fake signatures.
Clerical errors: Mistakes in the property’s public records, such as improper land designations, missing documentation, or incorrect records.
Boundary & access claims: Issues with landlocked properties that don’t have access to public roads or boundary and easement disputes with neighboring properties.
Title insurance is a useful tool for safeguarding your financial investment and maintaining your ownership rights to your property. While title insurance provides protection against past issues, it doesn’t protect against property issues that were known at the time of purchase, government land use (such as eminent domain), or issues that occur after purchase. You will typically need a separate homeowners insurance policy to cover those matters.
How Title Insurance Helps Home Buyers
Title insurance is often critical for home buyers because it provides significant protection against past, unknown issues. While taking out an insurance policy does add an additional cost to closing a real estate transaction, it provides considerable benefits, including:
Protects property ownership: Title insurance helps protect your right to own your property if unknown heirs, disputes, or claims arise that could otherwise jeopardize your ownership.
Covers legal defense costs: A title insurance policy will cover any costs related to litigation or defense and provide financial compensation if a dispute occurs after you purchase your property.
One-time cost: A title insurance policy is a one-time fee that will typically be included during closing, and it will remain in place for however long you own your property.
How Title Insurance Helps Sellers
Taking out a title insurance policy is not as critical for a seller as it is for a buyer when it comes to protecting their financial investment and ownership rights. However, it can help sellers better market their property and prove a clear title. The primary benefits of title insurance for sellers include the following:
Improves property marketability: Title insurance can help you conduct a title search and make sure the title is clean before selling your property.
Resolves potential issues: Since the title search is completed before you list your property for sale, you can identify potential issues, recording errors, or existing liens and resolve them before selling.
No ongoing protection: Once you close the sale, you no longer require title insurance protection since any liability for that property has passed to the buyer under their title insurance policy.
Reach Out to Our New Jersey Real Estate Attorneys for Assistance
Whether you are buying or selling a property, title insurance is a useful tool for protecting against unknown past issues relating to the property. At NJ Real Estate Law Group, our attorneys, Michael Weber and Heather Fabiyan, provide tailored representation specifically for real estate transactions. We can help you understand how title insurance can impact your transaction and explore your options for protecting your finances and ownership rights.
Located in Howell, New Jersey, we serve clients throughout the state. Contact our firm today to schedule a free phone consultation and see how we can help you make your real estate journey as stress-free as possible.