Home Title Insurance for the Buyer

(March 16th, 2008)

Home title is what gives you ownership of the property you are about to purchase. As the purchaser, you want a title that is clean and free of liens meaning no one else has made a claim against the home. This is common if the current owner has not been repaying his mortgage loans and the bank or other creditors have put a claim against the home. Other liens include unpaid taxes, easement (provision that allows other people other than the owner of the home to use the home for specific purposes such as to reach power lines or a cell phone tower). Title insurance is also very important for the lender because they want to know that the mortgage loan they are handing out is going to the actual owner who can sell the property to you.

The Title Search

A title search is done by a professional firm that inspects public records & computer databases. It checks for any liens on the house, deeds, wills, trusts and also traces the history of the property over many years in the past. It checks whether all the past mortgages, taxes and liens have been paid on the house. If not, that suggests a problem and you should back out from the deal! Does anyone have an easement right on the house? Are there any pending lawsuits or legal cases involving the house in the courts?

Despite of all these checks, it could be possible that the title search missed one important lien and it comes back to bite you years after you have purchased your home. In order to avoid this problem, you can purchase title insurance. Title insurance is available from all title insurance companies nationwide, their agents & attorneys. The fee you pay for title insurance is a one time up front investment based on the purchase price of your home. It might be as much as 1-2% of the selling price of your home. It also depends on the type of policy you purchase, and its comprehensiveness.

The policy protects you from losing your home by making the insurance company liable for any liens & antitrusts that spring up after you have purchased the home and bought title insurance. For example if an important document was missed or overlooked before you purchased your home, and you lose your home, the insurance company will pay you for the damages. This happens only if you purchased title insurance; if you didn't, you will totally lose your home! This is why we advise to purchase title insurance before signing up for a home.

When purchasing title insurance, be sure to read over all the fine prints carefully. Make sure you understand exactly what the policy covers and what damages it protects you from, and what damages are not covered. Also, the insurable amount should be the total value of your home. If you want a policy that also covers the value of your home as it increases, be sure to add an inflation rider clause to your policy - obviously this will cost more.

Mortgage lenders will not lend you money unless you also purchase a lender's interest title insurance that protects the bank's interest in your property. If you lose your home, this means the bank will lose its money as well. They want to stay protected and will require you to purchase a lender's title insurance policy on their behalf.

How to Take Title

You are at the closing minutes meeting signing your home ownership papers when the closing agent asks you how you would like to take title:

i) Sole Owner
ii) Joint tenancy
iii) Tenants in common

You probably have no idea what the heck these terms mean, but it is very important to know them! This will affect your tax and estate planning in the future. If you own a business, you also need to separate your home from your business so that in case you get sued in your business, you do not lose your home as an asset. An example is a doctor who gets sued for malpractice and loses his house as an asset.

i) Sole Owner - A single person buying a house can take ownership title in his personal name, this is the simplest option.

ii) Joint tenancy - When a married or divorced couple purchase a house 50-50, they can take joint tenancy with each having the right of survivorship. If one of the couple dies, the other person gets the right to survivorship and this means some tax advantages as well.

iii) Tenants in Common - When 2 or more people have an equal share in the house, they are considered partners and jointly own the house; also known as 'tenants in common.' These parties are allowed to sell their shares in the house independently.

Before you purchase the home, look at your estate & tax situation. Consult a CPA, estate planning agent and learn the advantages/disadvantages of each type of ownership.

Recording the Deed

When you take title to the property, you own it. However, recording the deed is just as important because it documents the transfer of the title from the seller to the buyer. Your ownership becomes official when the deed papers are signed & filed at the appropriate mortgage office in your city. This process works by the buyer & seller signing all the legal paperwork & the closing agent releasing the funds to the seller. A representative from the title company takes the deed and records it at the county's office. A fee must be paid for this service. The county clerk will record the transfer of ownership & your real estate transaction will now be a part of the public record.

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