In short, if you are paying real money to buy a home or piece of land, yes, you need title insurance. This purchase is perhaps the largest investment you’ll ever make. For a one-time premium, title insurance protects you, the owner, from title defects that arose before the date of your policy.
Nationally, title insurance companies pay out over $1 billion in claims every year. What are examples of defects will title insurance cover?
· Human error, like a clerical error in a deed in the chain of title.
· Defects even a title search cannot detect. Suppose someone who signed a deed 50 years ago was still a minor) at the time, which wouldn’t give good title; searches don’t typically go back that far.
· Problems with an estate back in time, where a missing heir claims to own an interest in your property.
· Problems where a neighbor claims they own an unrecorded easement over your land.
· A contractor file s a claim of lien, alleging the previous owner owed them money.
· It also covers you for outright fraud that you didn’t know about.
Title insurance pays for your attorney and court costs, and for any damage in the value of your property, up to the amount of the policy.
A lender’s policy won’t protect you as the owner. Lenders require title insurance up to the amount of the loan to protect themselves. You need a separate owner’s policy for the full purchase price to protect you.
The previous owner’s title insurance will not protect you either. However, their policy may be recent enough to get you a discount (reissue rate) on your policy.
Title insurance doesn’t cover issues that you knew about and accepted when you bought the property, like the power line easement or the neighbor’s recorded easement in your attorney’s title report. It also won’t cover problems a new survey would have disclosed, if you chose not to get a survey.
When and how do you get title insurance? Typically, your closing attorney arranges it when you buy the property. If your owners coverage is obtained when your lender gets their policy, your coverage is nominal in cost, almost free. However, you can purchase title insurance on property you already own, with an updated attorney title opinion. If yours is a cash purchase or if you are arranging an owner’s policy on property you already own, the one-time premium is usually a little more than $2 per $1,000 policy amount, so for a $250,000 policy amount, about $525-$550. The rates are set by the NC Department of Insurance, but vary based on which endorsements or policy details you choose, plus a nominal administrative fee by the title company. Unlike other insurance, you only pay for title insurance once, not annually. It insures you up to the policy amount as long as you own the property. If your property value increases significantly (e.g., because you improve it or from market appreciation), consider getting a new policy with higher limits. Updating a policy for greater coverage is always a lower rate than an initial purchase of title insurance. The rates for title insurance are for the policy alone, not including your attorney’s fee for your title search or your closing.
Do not confuse title insurance with the “title lock” policies marketed heavily online and on TV. Title insurance is a product that has been around for over a hundred years, with proven value and results for defects in this history of your title. Title lock policies are a new product, aiming to alert you to changes in the public record in the future.