How does title insurance protect a homebuyer?
For many individuals, owning a home is the heart of the American Dream, and there are a number of steps homebuyers need to take to make that dream a reality. Because buying a home is the largest investment many New York residents will make, it is essential for future homeowners to protect themselves. In addition to verifying the valuation of a home and arranging for an inspection, it is necessary to obtain title insurance to ensure that the seller can legally transfer free and clear ownership of the property.
Title Insurance at a Glance
Title insurance is designed to protect real estate owners and lenders against claims for any unknown defects in the title to the property. Claims can arise from a variety of defects, such as another individual claiming ownership in the property or improperly recorded documents. In some cases, property may be encumbered by unpaid taxes, judgments and liens, as well as encroachments and easements. Title insurance can also provide protection from claims arising from fraud and forgery.
There are two types of title insurance policies, a lender's policy and a buyer's policy. A lender's policy, also referred to as a "mortgagee's policy," protects the lender's interest, including the amount of the loan and legal costs. The buyer's or owner's policy protects you up to either the original sales price or the full market value of the property, depending on the type of policy. The homebuyer is required to pay for both policies.
Obtaining title insurance starts with an escrow agent or attorney ordering a title search. This involves a thorough examination of public records related to the property including deeds, taxes, and court records, such as wills, trusts, divorce decrees, bankruptcies, judgments and other public documents. Based on the results of this search, the title company will issue a title insurance commitment which is a preliminary report of potential defects and the conditions under which a policy will be issued. The commitment provides the seller with the opportunity to clear up any liens or remedy other encumbrances, and these are resolved either before the closing or with the closing proceeds.
In the final analysis, title insurance protects buyers and lenders from a variety of potential problems, whether a fraudulent sale by a seller who doesn't own the home or a number or liens that have been filed against the property. Before you buy a home, you should consult our real estate attorneys who can help to ensure that you obtain free and clear title to your dream home. If you have questions on purchasing a home in the eastern upstate New York area, call Ianniello Anderson at (518) 350-7755 today.