When purchasing a property, you might be surprised to see additional fees you probably weren’t aware of. This point may be the first you hear of title insurance. But what is it? And do you really need it?
What Is Title Insurance?
Before you can fully understand title insurance, you need to know what a title agency does for you during the purchase process.
When transferring the title of real estate, a clear title is required. A clear title means that there are no claims or liens against the property.
To ensure that title is clear, a title search is necessary to examine the chain of ownership and determine that there are no clouds (i.e. issues) on the title, such as liens, encumbrances, or ownership disputes.
If you’re working with a title agency, you’re going to have far less chance of problems after the closing of escrow. This is why we always recommend working with an agency, even in FSBO transactions. However, sometimes clouds on title don’t come up in a search, which is when title insurance can be a huge savior.
Title insurance is an indemnity insurance product that protects you from financial loss due to possible defects in a property’s title.
Who Pays for Title Insurance?
Because of the extra cost, many buyers ask, “Who pays for title insurance?”
When buying a property, there are two types of title insurance. The first is lender’s title insurance, which a borrower purchases to protect a lender against loss from defects on the title. Lenders will always require a borrower to buy this type of title insurance.
The second is owner’s title insurance, which can be paid by either the seller or the buyer. However, in Florida, the party responsible for the cost varies by county. Typically, it falls on the seller, except for the following counties:
- Broward County
- Sarasota County
- Miami-Dade County
- Collier County
Sometimes, the party who pays for owners’ title insurance is decided during negotiations in the offer and acceptance process. While this type of title insurance is not required to complete a purchase, it is strongly recommended.
One of the nice features of title insurance is that it doesn’t require a monthly premium. Instead, only a one-time premium is paid at the time of settlement, which covers any issues that could arise in the future and will protect the buyer’s capital interest.
How Does Title Insurance Protect You?
Just because a detailed title search is conducted doesn’t necessarily guarantee that title is clear and transferrable. Unforeseen, misfiled, or fraudulent claims or liens could result in a title being deemed invalid.
What does title insurance do for you when there’s a title issue? It protects you and your lender from financial loss.
Owner’s Title Insurance is an optional purchase and covers buyers in the case of:
- Conflicting ownership claims, including contradicting wills on the property;
- Unpaid taxes or claims;
- Active lawsuits with accompanying liens or encumbrances against a property that were not uncovered during the title search and which could invalidate the title;
- Mistakenly filed records;
- Fraud, including falsified documents;
- Easements or agreements that were not disclosed and that may limit the use of a property, therefore impacting its value.
If you purchase a home, but the seller or previous owner has a flawed or forged title, this could thwart your sale. It’s these situations where title insurance protects your investment.
Another instance where title insurance can protect you is when others have not done their due diligence in the past.
If a property was sold years ago without a property title search, there’s a much higher possibility that a cloud on the title was not uncovered. These problems can stretch back decades, which is why a title search and title insurance are crucial to protecting your purchase.
Lender’s Title Insurance, on the other hand, must be purchased before a home loan is obtained. In most cases, it’s issued once a title agency completes its title search.
How Much Does Title Insurance Cost?
Purchasing title insurance is essential when buying property.
In Florida, buyers can expect to pay approximately $1,000 for title insurance. While this may seem like a lot compared to the overall cost of a property, it’s only a very small percentage of your total purchase cost and well worth the expense to protect your investment.
Certain factors such as location, the type of financing (purchase or refinance), buying new construction, and whether a seller and owner’s policy are purchased together will impact the cost of title insurance.
Let Leading Edge Title Lead You Home
Title searches and insurance are only a small piece of the homebuying puzzle. In order to have a successful closing, you need to make sure your title agency has adequate experience, knowledge, and resources to get the job done.
At Leading Edge Title, we have a track record of more than 15,000 closings in our 24 years of business, so we know how to take care of you and your purchase.
Let us handle the paperwork and small details, so you can focus on finding, buying, and moving into your dream home.
Call or stop by our Winter Park or Winter Springs locations to find out how we can help you.