Buying a home is a significant investment. As such, you’ll want to do whatever you can to protect your finances. In addition to conducting a thorough inspection and researching the local market, you'll need to obtain title insurance. Here's what you should know about this coverage.

What Happens During a Title Search?

In real estate, the term “title” refers to an individual’s right to own—or, in some cases, to occupy—a piece of property. For real estate to transfer hands, it must be free of any discrepancies regarding ownership and occupation or usage. 

To ensure the seller is eligible to sell the property, the buyer must conduct a title search. This process aims to trace the lot’s history by reviewing public records, which should detail any existing title defects.

Title searches are conducted by abstractors whose goal is to create an abstract of title. This is essentially a written chronology that details the history of the property. It should include every transfer of ownership, all past surveys, and any existing easements. The abstract should also list any lawsuits or estate planning documents that mention the property. 

The abstractor determines all such information by digging up all relevant documents they can find regarding the property in question. As long as you use a reputable title search company, you can be sure this search will be incredibly comprehensive. Depending on how convoluted the property's history may be, though, one or more defects could still end up falling through the cracks. 

What Are Some Common Examples of Title Defects?

Issues that can pose hurdles when transferring a property's ownership include:

• Liens
• Easements
• Encumbrances
• Boundary Disputes
• Inheritance Disputes
• Past Due Property Taxes
• Forged Documents
• Errors in Public Records
• Unpaid HOA Fees
• Outstanding Invoices for Repairs or Remodels

Excluding complications like forged documents and recording errors, title defects can generally be divided into two categories: legal claims against the property and financial claims against the owner. If any such defects are not discovered during the title search and you end up buying the property, that means you'll eventually have to deal with legal claims against your new home or financial claims against yourself. 

Thankfully, you can protect yourself and your investment in such a scenario by purchasing title insurance. If a covered defect becomes apparent after closing, an adequate policy will cover the costs associated with resolving it. 

Are Homeowners Required to Purchase Title Insurance?

There are two kinds of title insurance. One protects homeowners, and the other protects mortgage lenders. 

Generally speaking, buyers who intend to finance their homes must purchase a policy to protect their lender. This policy ensures the lender has priority claim over the property, even if any liens exist.

Policies for homeowners, on the other hand, are optional. However, it’s still wise to purchase such a policy. If an undisclosed lien arises or an alleged beneficiary sues you for ownership, your carrier will cover the associated expenses, like legal fees and court costs, so you can retain ownership of the property. 

If a legitimate defect were to become apparent and you didn't have title insurance, you would be responsible for resolving it out-of-pocket. That might mean paying off the value of a hefty lien or hiring an attorney to challenge an alleged heir in court. Naturally, such expenditures can add up fast.

How Long Does Title Insurance Last?

Lender’s title insurance lasts for the life of the mortgage. It’s generally purchased for a one-time fee, and as the balance of the loan decreases, so does the total coverage. Once the mortgage is paid off, the policy is no longer needed. 

Homeowner’s title insurance, on the other hand, is based on the total purchase price, and it remains in effect as long as the buyer owns the home. However, it does not cover any new issues that arise after the policy was purchased. In other words, if you were to fall behind on HOA fees or fail to pay a contractor in full upon completing a remodeling job, your title insurer would not bail you out. 

Your policy would only cover defects that originated prior to you assuming ownership, even if they were undiscoverable until well after. When you buy a lender and homeowner's policy together, you'll typically be spending between 0.05% and 1% of the property's purchase price on the coverage. 

When you’re ready to buy a new home, turn to Chattanooga Title Inc. for protection. Since 1987, this title company has served clients across Hamilton County, TN, and the surrounding areas. This full-service agency can facilitate your next real estate transaction from start to finish. They'll conduct a thorough title search to ensure the property is free of liens and other potential defects. To learn more about the ways they can help, visit their website. Call (423) 756-3057 to ask about their title insurance options.