What is a title? Why do I need title insurance? These are a couple of questions that might come up when you are purchasing a home. We’re going to answer some commonly asked questions about titles and title insurance. Title companies in Bozeman also have some great resources on their websites and can help answer any questions you might have regarding the property you’re purchasing! Some Bozeman Title Companies are: First American Title Company, Security Title, American Land Title and Montana Title and Escrow.
What is the Title?
The title is the legal document that includes the specifics about the property you are purchasing and who owns it, often in the form of a deed. One of the steps in buying a home is to have a title search completed prior to closing. A title search is performed to ensure that the title is clear and that there are no unexpected surprises. While most home purchases are completed with very little hassle, some do involve issues with the title.
What is title insurance?
Many homeowners assume that when you purchase a property, the deed is the only thing you need to prove ownership. This isn’t entirely true. When purchasing a home, the seller will pay a one time fee for title insurance which protects you (and the lender) from any title defects that may arise after the purchase. There are two types of title insurance: an Owners Policy (also called a Standard Owner’s Policy) and Lenders Policy (also called Extended Loan Policy). If you purchase a home with a loan, the lender will most likely require title insurance to insure the property and their financial investment. The Owner’s Policy will protect your rights as the home owner.
Why Should I get Title Insurance?
Getting title insurance is the best way to protect your largest investment from future legal claims! Title insurance protects your right to own the property you purchase. Unlike other types of insurance, it protects from what has already happened to the property, not what will happen in the future. Before you buy a property, the title company will do a full title search to make sure there hasn’t been a lien, claim or encumbrance on the property. If a claim arises after purchase, it will be corrected or you will be reimbursed according to the Title Insurance Policy.
What Does Title Insurance Cover?
Title Insurance protects you against claims from possible defects or “cloud” on the title. Some examples from First American Title Co. include:
1. ERRORS IN PUBLIC RECORDS: To err is human, but when it affects your home ownership rights, those mistakes can be devastating. Clerical or filing errors could affect the deed or survey of your property and cause undue financial strain in order to resolve them.
2. UNKNOWN LIENS: Prior owners of your property may not have been meticulous bookkeepers – or bill payers. And, even though the former debt is not your own, banks or other financing companies can place liens on your property for unpaid debts even after you have closed on the sale. This is an especially worrisome issue with distressed properties.
3. ILLEGAL DEEDS: While the chain of title on your property may appear perfectly sound, it’s possible that a prior deed was made by a minor, a person of unsound mind, or one who is reported single but in actuality is married. These instances may affect the enforceability of prior deeds, affecting prior (and possibly present) ownership.
4. MISSING HEIRS: When a person dies, the ownership of their home may fall to their heirs, or those named within their will; however, those heirs are sometimes missing or unknown at the time of death. Other times, family members may contest the will for their own property rights. These scenarios – which can happen long after you have purchased the property – may affect your rights to the property.
5. FORGERIES: Unfortunately, we don’t live in a completely honest world. Sometimes forged or fabricated documents that affect property ownership are filed within public records, obscuring the rightful ownership of the property. Once these forgeries come to light, your rights to your home may be in jeopardy.
6. UNDISCOVERED ENCUMBRANCES: When it comes to owning a home, three can be a crowd. At the time of purchase, you may not know that a third party holds a claim to all or part of your property. This could be due to a former mortgage or lien, or non-financial claims, like restrictions or covenants limiting the use of your property.
7. UNKNOWN EASEMENTS: You may own your new home and its surrounding land, but an unknown easement may prohibit you from using it as you’d like, or could allow government agencies, businesses, or other parties access to all or portions of your property. While usually non-financial issues, easements can still affect your right to enjoy your property.
8. BOUNDARY | SURVEY DISPUTES: You may have seen several surveys of your property prior to purchasing, however, other surveys may exist that show differing boundaries. Therefore, a neighbor or other party may be able to claim ownership to a portion of your property.
9. UNDISCOVERED WILL: When a property owner dies with no apparent will or heir, the estate may sell his or her assets, including the home. When you purchase such a home, you assume your rights as owner; however, even years later, the deceased owner’s will may come to light and your rights to the property may be seriously jeopardized.
10. FALSE IMPERSONATION OF PREVIOUS OWNER: Common and similar names can make it possible to falsely “impersonate” a property owner. If you purchase a home that was once sold by a false owner, you can risk losing your legal claim to the property.
How much does an owner’s Title Insurance cost?
Owner’s Title Insurance is a one-time payment at closing of about 0.5% of the homes purchase price.
How long am I covered by my Title Insurance?
Your policy is active for as long as you, or your heirs, own the property.
What does a Title Company do?
The title company can search all public records regarding the history of the property that is being purchased or refinanced. Some of the things the title company is searching for are liens, claims, easements, debts, legal judgments and encumbrances.
Many title companies also offer escrow services. When selling, buying or refinancing real estate, title companies can handle funds, special reporting, and documents. The Escrow Officer will help you get your documents signed to close escrow on the property.
Have more questions? Contact us or a local title company!