Among the more misunderstood areas of real estate transactions are questions about title insurance and what does title insurance cover? Let’s take a look at what title insurance is, what it covers – and what it doesn’t – and why it is essential to protect your biggest investment.
What is title insurance?
Title insurance protects real estate owners and lenders against any property loss or damage they might experience because of defects in the title to the property. Title insurance differs from other types of insurance in that it focuses on risk prevention, rather than risk assumption. Just like a homeowner’s policy will protect against loss from theft or fire and wind damage, the home title insurance protects from hidden title hazards that threaten the owner’s financial investment in the home.
When a property is financed, bought, or sold, a record of that transaction is generally filed in public archives, along with other events that may affect the ownership of a property, like liens or levies. While a title search does due diligence during any property transaction, mistakes can be made and things can be missed.
Title insurance protects you from these unforeseen legal and financial title discrepancies, as well as the costs, attorney’s fees, and expenses of defending against those defects insured by the policy. Likewise, title insurance can protect you from financial loss if the sale of your home falls through due to a covered defect in the property’s title.
What does title insurance cover?
The home title insurance policy protects the homebuyer’s ownership rights as long as they—or their heirs— have an interest in the home. A title search does due diligence during any property transaction, but mistakes can be made and things can be missed. Oftentimes a home or piece of land has been owned by numerous people stretching back a century or more. Title insurance protects from possible errors, and from future claims or undiscovered interests.
Similarly, when it comes to the construction of a new home, there is a potential for exposure to unique pitfalls. There were likely numerous owners of the unimproved land over the years who may seek to claim ownership rights. There is also the potential that the home’s builder failed to pay subcontractors or suppliers during the construction of your home, which could result in a lien being placed on the property.
While there is any number of errors and title defects that can be protected against with title insurance, here are a few of the more common ones:
- Improper execution of documents
- Mistakes in recording or indexing legal documents
- Forgeries and fraud
- Undisclosed or missing heirs
- Unpaid taxes and assessments
- Unpaid judgments and liens
- Unreleased mortgages
What is not covered under title insurance?
As with any insurance, there are some risks that may not be covered under your policy. For example, this type of insurance does not protect you against anything found during an inspection of your property. Also, it does not insure against any title issues that you are already aware of nor does title insurance protect you against the condition of the home, such as the discovery of termites, radon, mold, or anything that happens to the title to the home after the closing date.
Why title insurance is essential for your home
Protecting the title of your home is critical. Without a strong Florida title insurance policy issued by a reliable title company, if someone files an ownership claim even years after closing, you could end up losing your home. Oftentimes, the title company will issue title insurance policies as an independent agent on behalf of a title insurance company. The title company simply facilitates the paperwork for issuing the policy, while the actual insurance premium goes to an underwriting company, which bears the risk of any loss under the policy.