What Does Title Insurance Not Cover?
The term title insurance is not so new, especially among home sellers and buyers.
This is a type of insurance that protects you from financial loss due to defects in the title of the property.
Title insurance is usually required by lenders and often recommended by real estate agents.
But what does title insurance not cover? And why do you need it in the first place?
In this article, I will explain the basics of title insurance, the common exclusions from coverage, and the benefits of having it.
What Is Title Insurance and How Does It Work?
Title insurance is a policy that covers you from claims or lawsuits that challenge your ownership of the property.
It also covers the legal fees and costs associated with defending your title.
Title insurance is different from other types of insurance because it covers past events, not future ones.
It is based on a thorough search of the public records that reveal the history of the property and its ownership.
When you buy a property, you expect to receive a clear title, meaning that no one else has any rights or claims to the property.
However, sometimes there are hidden defects or errors in the title that can affect your ownership rights.
For example, there could be:
- Unpaid taxes, liens, or judgments against the property or the previous owners
- Errors or omissions in the deeds or other documents
- Fraud, forgery, or identity theft involving the title
- Missing heirs, spouses, or creditors who have a claim to the property
- Easements, encroachments, or boundary disputes that limit your use of the property
These title issues can cause you to lose money, lose the property, or face legal action.
That’s where title insurance comes in.
It protects you from these risks and pays for any losses or damages that you may suffer as a result of a defective title.
What Does Title Insurance Not Cover?
Title insurance covers most of the common title issues that can arise during or after a real estate transaction.
However, there are some exceptions and limitations that you should be aware of.
Title insurance does not cover:
- Defects that you create or agree to, such as taking out a new mortgage or signing a contract that affects the title
- Defects that are known to you or disclosed to you before or at the closing, such as an existing easement or lien that you accept
- Defects that are not recorded in the public records, such as unrecorded leases, contracts, or claims
- Defects that result from your failure to pay your taxes, assessments, or charges on the property
- Defects that affect the value or marketability of the property, such as zoning laws, environmental issues, or building code violations
- Defects that arise after the date of the policy, such as a new lien or claim that is filed against the property
These are some of the general exclusions from title insurance coverage.
However, each policy may have different terms and conditions, so you should always read your policy carefully and ask questions if you are unsure about anything.
Why Do You Need Title Insurance?
Title insurance is not mandatory, but it is highly advisable for anyone who is buying or selling a property.
Title insurance can save you from a lot of headaches, hassles, and expenses if you ever encounter a title problem.
Here are some of the benefits of having title insurance:
- It gives you peace of mind that you have a clear and valid title to the property
- It protects you from financial loss if someone else makes a claim to the property or sues you over the title
- It covers the legal fees and costs of defending your title in court or settling the dispute
- It pays for any damages or losses that you may incur as a result of a title defect, such as losing the property or having to pay off a lien
- It lasts as long as you own the property or have an interest in it, and it can be transferred to your heirs or successors
Title insurance is a valuable protection that can save you from a lot of trouble and expense if you ever face a title issue.
However, title insurance does not cover everything, and you should be aware of the exclusions and limitations of your policy.
Title insurance is a one-time fee that you pay at the closing, and it is usually based on the purchase price or the loan amount of the property.
The cost of title insurance may vary depending on the state, the title company, and the type of policy.
Title insurance is not a substitute for legal advice, and you should always consult a qualified attorney if you have any questions or concerns about your title or your rights.
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