As real estate agents, opportunities to learn from other vital members of the team of experts who guide buyers and sellers along the entire real estate journey is a key part of how we grow to better serve our clients. That’s why we always look forward to our “lunch and learn” sessions with KVS Title Vice President, Settlement Attorney Melissa Giove Brault.
In early May we sat down with her to talk about the importance of title insurance, something we often get peppered with questions about, especially when we’re representing first time buyers.
We get it. Closing costs add up quickly, and every dollar matters. Which is why title insurance isn’t just good to have, it’s essential to protect your investment. Without title insurance, ownership of your home could be threatened or even taken away from you, even if you’ve paid for the property and received a deed.
Let us break down the essential questions most buyers have.
Is title insurance really necessary?
“It’s often best to look at title insurance as you would any other type of insurance,” says Brault. “You never really know if you need it until you do. And if the time comes when you do need it, if you do not have it, all costs associated with defending your title interest will be out of pocket.” Keeping in mind that owner’s title insurance protects your ownership interest in your property, and if that ownership ever comes into question, an owner’s title insurance policy protects you from expensive legal problems that could result in the worst-case scenario: loss of your home and/or the inability to sell it. As Ms. Brault notes, “for a relatively small price, you get the assurance that, should any objection or decree from another party threaten your ownership in your property, your owner’s title insurance will provide critical protection from what could end up being a devastating financial loss.”
We know what you might be thinking: you’ve met the sellers of the property and they seem like nice people! Or maybe, you’re buying from someone who has owned the property for 50 years, so what possible issues could arise?
“We’ve seen cases where the encumbrance and/or lien on the property was decades old,” Brault explains. “Our job is to review the third-party abstractor’s compilation of public records, court actions and other filed decrees pertinent to the subject property. Sometimes those searches reveal recorded defects, liens or other restrictions that, if not discovered and resolved prior to settlement, could have come back to jeopardize ownership later.”
As a one-time fee paid at closing (as opposed to homeowners’ insurance or health insurance premiums, which are paid regularly), title insurance is definitely the way to go for the buyer looking to minimize risk when making a large-scale purchase of their dream home.
But the lender has title insurance, so why do I need it too?
Banks don’t take risks, that’s why they protect their investment in your transaction with lender insurance. But their coverage doesn’t extend to you or protect you. Their coverage only protects their investment, i.e., the loan itself. Accordingly, it behooves buyers to make the relatively small investment of owners’ title insurance to afford comparable protection for their newly purchased asset.
Can I just get the basic coverage?
Basic coverage will protect you against past encumbrances and fraud on the title. But it will not protect you against future title matters such as a mechanics lien, which happens way more frequently than you’d imagine. Let’s say the seller of the home you’re buying had $100,000 worth of work done before listing the home, but wasn’t satisfied with the job that was done, and thus didn’t pay the final bill. The contractor can assess a mechanics lien on the property. Once that property is yours, so is the mechanics’ lien, unless you have purchased an enhanced policy. Fighting it in court will cost way more than what the policy would have cost in the first place.
In short, enhanced policies cover the same past encumbrances on title that basic coverage provides but also protect against anything that comes up in the future. Not to mention, under an enhanced plan, the policy amount covered increases 10 percent per year over five years, up to 150% of the purchase price, which is crucial in the ever-increasing DMV housing market.
The bottom line: we care about our clients well past the settlement date and we do not want to see anyone lose their dream home. Avoid that risk by investing in an enhanced title insurance policy to give you peace of mind—and sweet dreams in your new home.