When you purchase a home, you’re not only acquiring physical property but also the rights to ownership of that property. These rights are conveyed through a document called a title, a legal record of ownership. Title insurance is an essential part of the home-buying process. It helps ensure that the property you buy is free from legal issues or encumbrances that could cause future ownership problems.
But what happens if there are issues with the title to your property? That’s where title insurance comes in. It’s a critical part of protecting homeowners and lenders from financial losses due to property title issues. Keep reading to learn more about the importance of title insurance and what it protects against.
Two Types of Title Insurance
There are two types of title insurance, owner’s title insurance and lender’s title insurance. Owner’s title insurance is a policy that protects the homeowner’s interest in the property. It is usually purchased at the time of the sale and covers the property’s full value. This insurance is optional, but it is generally recommended for homeowners since it protects against any issues that may arise with the title to the property for as long as the homeowner owns it.
Lender’s title insurance protects the lender. It’s required by most lenders as a condition of the loan and covers the loan amount. This type of insurance protects the lender if there are issues with the title to the property that could potentially result in the lender losing their investment. Once the loan is paid off, the lender’s coverage ceases to exit.
Both owner’s title insurance and lender’s title insurance offer coverage. They cover legal fees and other costs associated with defending against a claim or dispute regarding the title to the property. They also provide coverage for losses that may occur due to a defect in the title, such as the inability to sell the property or a decrease in the property’s value due to title issues.
What Exactly Does Title Insurance Protect Against?
Here are some common issues that title insurance can help safeguard you from:
1. Errors or Omissions in Public Records
These mistakes include discrepancies in the property’s chain of ownership, documentation, zoning laws, and any outstanding liens or mortgages.
2. Fraud
Title insurance can protect you against fraud or deception in the property transfer process, such as forged deeds or fraudulent property sales.
3. Undiscovered Claims
Title insurance can also help to protect you against claims to the property that were not discovered during the title search process. Claims often result from outstanding liens or judgments against the property.
4. Unknown Legal Issues
Title insurance can protect against future legal issues, such as boundary disputes or rights of way.
What Won’t Title Insurance Cover?
It’s important to understand that title insurance does not protect against some issues, such as building code violations, environmental hazards, structure defects, etc. That’s why it’s always advised to hire a professional to conduct a thorough home inspection before purchasing a property. Our New Jersey title insurance agency will walk you through the more specific details.
Additionally, title insurance does not protect against complications created after issuing the policy. For example, if a homeowner takes out a title insurance policy and several years later discovers that the property is being rezoned as flood risk, the title insurance policy will not cover any losses that may occur due to flood damage.
Before We Go, It’s Worth Noting
Home insurance and title insurance are two separate types of insurance. Home insurance, also known as homeowner’s insurance, protects homeowners against losses due to various perils, such as fire, theft, and natural disasters. It covers the home’s physical structure and the homeowner’s belongings and usually provides personal liability coverage. Title insurance, on the other hand, protects against issues related to the ownership of the property.
Title insurance is a vital tool for New Jersey homeowners and lenders that helps safeguard you against potential financial losses due to issues with the property’s title. While it’s not a catch-all solution, it can provide peace of mind and protection in the event of any unforeseen legal issues or defects with your title. If you’re in the process of purchasing a home, be sure to speak with a qualified title insurance professional to learn more about the benefits of title insurance and how it can protect you.
Cortes & Hay has been protecting homeowners and lenders across New Jersey for more than five decades. Let our experienced and professional staff help you with title insurance for your next property purchase. Or, if all you need is a quick question answered, please get in touch with us! We would love to help you.