Buying a home is a momentous occasion that involves many steps, the vital one being purchasing title insurance. It’s your security blanket that protects you from any possible discrepancies that could arise before or after you close on your home.
Let’s delve into the workings of title insurance and how it continues to protect you even after you've purchased your home.
What is Title Insurance?
If you’re making your first home purchase, you may be overwhelmed by hearing that you must obtain various types of insurance policies. The most common policy discussed with your lender is homeowner’s insurance. Though it is essential as it protects your property from any damage, title insurance keeps your home safe from any third-party claims that did not appear on the initial title search.
What is a Title Search?
Before you purchase your home, title companies search public records that include but are not limited to deeds, mortgages, divorce decrees, court judgments, tax records, and child support orders. Why is this necessary? The search is to ensure that no one else has any rights to your home. If any issues are found in the title search, it may interfere with the sale.
Types of Title Defects
Your title company will search for specific details that may be tied to the title of the home. Here are the main three:
Liens
Liens are a legal right or claim against a property by a creditor. If the seller or a previous owner failed to pay taxes or if they owe a lender, a lien could affect the sale of the home. If your lender sees that there is a lien, they may not approve your loan.
Easements
An easement is when someone else has the right to use your property, even if you are the owner. What’s important to know is what that easement allows, doesn’t allow, and what parts of the property the third party has a right to.
Easements are actually quite common, especially in suburban areas. Most easements give local utility companies the right to use your property so that they can access power cables, water lines, etc. So, there’s really nothing to fear with an easement. However, it is still necessary to search for them in case anything else pops up.
Encumbrances
Encumbrances are a bit more complicated than liens or easements. They can impact a property's transferability or use.
It’s a claim telling the homeowner how to use their property. The claim is brought up by a third party that is not the owner and can impose restrictions on the home. Claims can come from zoning laws, liens that seek repayment, homeowners associations, etc.
Purchasing title insurance is an essential step in securing your new home. It acts as a safeguard, protecting you from any unforeseen title defects that could arise, ensuring peace of mind both before and after closing. Understanding the intricacies of title insurance, including the importance of a thorough title search and the potential impact of liens, easements, and encumbrances, empowers you to make informed decisions in the homebuying process. With title insurance, you can confidently move forward, knowing that your investment is protected from hidden claims and disputes, allowing you to fully enjoy the milestone of owning your home.