Do I Need Title Insurance for New Construction?

new home construction - a new construction home in the middle of being built

Title insurance is an often overlooked but necessary expense when buying or selling a home. It protects the buyer and seller in the real estate transaction against unique title-related issues from previous owners. But do you need title insurance for new construction? In short, yes.

New construction, of course, means that there are no previous homeowners. The house is built from scratch, and you are the first homeowner. However, chances are that someone previously owned the land, and there could be hidden title issues that arise.

This article explains why you need title insurance and everything you need to know about getting title insurance for new construction.

What Is Title Insurance?

Title insurance for new construction is a type of insurance that covers buyers and sellers from any defects on the title during a real estate transaction. Since title records are filed in public archives, this increases the risk of missing paperwork or filing errors when recording title documents in county records.

Title insurance also protects the buyer from unpaid liens or judgments that a previous owner neglected to resolve. Without title insurance, the new homeowner would be obligated to pay the outstanding property taxes that the previous owner didn’t resolve. Luckily, title insurance protects you from these circumstances.

Even the may be unable to uncover all the title issues on every property. There may be previous title issues that title agents missed or new defects like mechanics liens filed by contractors who performed work on the property but weren’t paid.

Types of Title Insurance

There are two types of title insurance available to buyers and sellers. First, the lender’s title insurance protects the lender until the loan is paid off or when a borrower refinances their existing mortgage. The lender’s title insurance is based on your loan amount and tends to decrease as your loan is paid down over time.

On the flip side, owner’s title insurance purchased by the buyer protects them against many of the issues we previously mentioned. Unlike the lender’s title insurance, the owner’s title insurance lasts until you give up ownership of the property in the future, meaning that the title insurance company will legally defend you if unforeseen title issues arise.

A subdivision filled with new homes being built

Title Insurance for New Construction

Since new construction homes don’t have previous owners, you may think you don’t need title insurance at all. However, this couldn’t be further from the truth. In fact, it’s just as important for new construction homeowners to get title insurance as it is for homes with previous owners.

Liens and Unpaid Property Taxes

Title insurance policies protect against any liens that may be present on unimproved land. The title policy also ensures there is no question of ownership after you sell the property. The most common instance of title insurance defects includes unpaid property taxes or liens issued by contractors.

Title Insurance Protects Your Rights to Ownership

Title issues can also arise after closing on your new construction home. Even if you buy the land from a developer who has performed a title search, title issues may still surface after closing. This ends up costing the buyer money when trying to resolve the title issues or forces them to lose the home altogether.

Title Insurance Is Required

It’s important to know that title insurance is required by your mortgage lender–even for new construction homes. Title insurance is one of the ways that the lender protects itself and its interests in real estate transactions. Without title insurance, the loan could fall through and cost lenders thousands in legal fees and wasted time.

It Protects Against Title Issues

Mechanics liens (also known as contractor’s liens) arise when a contractor performs work on the home, but the homeowner fails to pay them for their work. The contractor files a lien on the property to demand payment for their services.

Luckily, title insurance policies and title searches often uncover these issues before closing. However, sometimes these liens aren’t discovered due to filing errors in public records. When that happens, new owners must pay these costs from their own pocket to satisfy the lien on the property.

Title Insurance Protects Future Owners

Title insurance for new construction doesn’t just protect you as the new homeowner. It protects the people to who you plan to pass the home to in the future, such as your children or other family members. Approaching the title process correctly ensures that future homeowners aren’t stuck with liens or judgments on the property once it changes owners in the future.

Title agent reviewing paperwork for new construction deal

Final Thoughts

Title insurance for new construction is just as important as getting title insurance on a home with previous owners. It is the only way to protect yourself from many of the possible title issues that may arise.

For more helpful resources, contact us to find out why Leading Edge Title is the best title agency in the Central Florida area.

Winter Park Office

1155 Louisiana Ave
Suite 107
Winter Park, FL 32789
(407) 644-2777

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1315 Tuskawilla Road
Suite 101
Winter Springs, FL 32708
(407) 699-7773

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