Q: I’m buying my first home this summer, and the one that I like the best has some causes for concern. It’s a house that is being sold by the bank, and was previously foreclosed. It’s been empty for some time, but it’s in overall good shape. The inspection’s been done, and there’s a few things that need a fix that are either within my budget or DIY skill set. I want to finalize my offer, but when I mentioned this to my boss, he said that I needed to get a title insurance policy at my closing. I’m kind of confused because I thought my mortgage had title insurance already.
A: There are two types of title insurance, one is for your mortgage lender and the other is for you, the buyer of the property. The title insurance for your lender protects the lender’s financial exposure ion case there is a claim against the property that was not revealed in a title search. The buyer’s interest and equity in the home is not protected by this policy at all. It’s there to cover the lender, and that’s it.
The title insurance policy for buyers insures against the same thing, only it protects you and your investment in the property in the event that the seller or previous sellers did not possess clear title to the property or have the right to sell it. In the most extreme cases, a seller can present fraudulent title such as selling a home they do not own or forging a signature of a co-owner. The home might have a lien against it for back taxes or a mechanic’s lien for unpaid work that wasn’t revealed in the title search.
What your boss is worried about is that the house may have been wrongly foreclosed upon like this case in Texas, and as a result, could have a defect in title. Only instead of going after the bank, trust, and lender, the former owners could come after you – the smaller target, but the one with their house. These cases from the start of the recession are only beginning to reach the courts, and there will probably be more of them as the former owners of these homes seek relief. The basic policy covers you across the home’s known history through the time that the title is transferred to you. This is a one-time fee, paid at closing and will cause the insurer to defend against challenges to the title or “cure” the title of any defects arise.
There are additional coverages for specific situations that you may wish to consider above the basic policy such as permit or zoning violation coverage, coverage for improper subdivision, coverage against restrictive covenant violations committed prior to taking title, and other conditions. As old paperwork is uncovered and entered, facts about a property can change unexpectedly. Please contact us with your agent, and we’d be delighted to coach your through your first home purchase!