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Why do you need title insurance?

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If you’re closing on a home, you want to make sure that everything is square with the title before you do so. One step in this process may be to purchase title insurance. It’s important to know what this is and how it works, along with being aware of the current rates.

After all, buying a piece of property, whether it’s a home or a business, is a major investment. You need to do what you can to protect that investment, and you want to be sure that there is nothing happening behind the scenes that could hinder your purchase. Title insurance is just one way that you can do so.

How title insurance differs from traditional insurance

One of the biggest differences between title insurance and a traditional insurance plan, such as homeowners’ insurance, is that most insurance plans are purchased on an annual basis to protect against negative events that may happen in the future. A homeowner is worried that a home might burn down in a fire, for instance, or a lender is worried that damage to the home will make it worth less than the value of the loan.

With title insurance, however, you’re insuring yourself against a negative financial situation created by issues with the home’s title in the past. Both buyers and lenders can purchase types of title insurance. It is merely a one-time purchase, not an annual fee.

What types of issues may show up that could cause this financial harm? Some of the most common ones include:

  • Conflicting will when a home is being passed to the next generation
  • Back taxes that are still owed on the property
  • Liens from previous loans, such as a home equity line of credit or a mortgage loan
  • Building code violations that have not been fixed
  • Erroneous surveys

Issues with the title can incur a lot of different fees, including administrative fees, and so having some sort of insurance to prevent against the financial loss can be beneficial. Remember that a title has to be clear before the home can change hands, so these issues do need to be resolved in one fashion or another. Since you can’t necessarily know about all of the potential issues with the title in advance, insurance is a way to protect yourself against things that may be found during this process.

Once again, this is a major investment, so it is very important to know about all of your legal options and the steps you need to take to make sure that things go smoothly and you do not incur any substantial losses.