It feels like there’s insurance for everything these days. Title Insurance may seem like just another piece of legal minutia, but it’s actually a crucial part of buying property that can protect you from massive loss.
What Is Title Insurance?
Title insurance does two things. First, when you purchase a property, title insurance provides to you assurance that the person selling you the property actually has the right to sell it. Title companies will look back through previous owners of a property as identified in the various deeds to make sure that there’s no issues of concern. This is called a title search.
Maybe there was a conflict 10 years ago where it became unclear who owned the property. Maybe two people once owned your property and one agreed to sell it but the other did not. A problem like this is called a cloud on title, and it is what a title insurance policy is designed to help you avoid.
Second, if a problem does arise, the title company will agrees, subject to various limitations, from financial loss.
Two Types of Title Insurance
Title companies sell two types of title insurance: the basic plan called an Owner’s Policy which includes all the features mentioned above, and the more in-depth plan called a Homeowner’s Policy which covers more.
For example, a Homeowner’s Policy may provide you with certain protections in the event that part of your property is zoned for something other than the current use. Often these sorts of issues are not disclosed prior to closing. These sorts of coverages provide you with an extra layer of protection in the event of a problem.
There are also individual policies to protect the buyer and the lender (if you’re borrowing money from a bank for example). Your lender will likely require you to buy a policy to protect your lender. In such cases, you’ll want to buy a separate policy to protect yourself as well.
How Much Does Title Insurance Cost?
This depends on a lot of factors which is why we put together a title fee calculator to estimate costs for those living in Tennessee. This is just an estimate, but it should give you a general idea.
Should I Get Title Insurance?
You should always get the basic Owner’s Policy of title insurance when you buy a property. It’s so important that many states require it. In Tennessee, title insurance is often only required by the lender.
The more in-depth policy Homeowner’s Policy is optional, but the basic Owner’s Policy is a must.
Even if you are buying property from someone you trust like a family member, you should get title insurance since there could be a problem several transactions back.
Even if you know how to do a title search yourself, you’ll still want to get title insurance. Why risk massive financial loss and lengthy legal headaches?
According to Guardian Title & Trust, “an owner could face serious financial loss and even lose ownership of a piece of property due to undiscovered defects. If you buy title insurance, you can rest assured knowing that the title insurance company will compensate you for any losses resulting from covered title defects, up to the amount of the policy.”
Neglecting title insurance is too big a risk to take. Always get title insurance.
Title Insurance for Commercial Real Estate
Title insurance is even more important for commercial real estate than for residential because commercial real estate is often more expensive and the deeds are more complex. You wouldn’t risk losing your home because of legal technicalities. Why risk losing your business?
Who Pays for Title Insurance?
According to Dave Ramsey, “In a lot of states, it’s customary for the seller to pay for [title insurance].” This isn’t true in every state however. Who pays is “a matter of negotiation and a matter of custom, not a matter of law.”
In Middle Tennessee and Nashville, the seller usually pays for the owner’s title insurance policy. For new builds, the buyer normally pays. So be sure to include this in your negotiations when buying property.
Title insurance is a critical part of buying a property, residential or commercial. Neglecting it can lead to serious problems down the road.
Buy title insurance from our real estate title company and get peace of mind when investing in your next real property.