It makes sense to look into title insurance when you’re purchasing land. But what is title insurance, and how does it help protect you and your investment?
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You always want to be as protected as possible with any real estate investment that you make. For that reason, here’s what you need to know.
What is Title Insurance?
Title insurance is protection against title defects. The title itself is documented proof of ownership and the seller’s right to both possess and sell a particular piece of property. When you buy land, you buy the title, and are from then on the one with those rights.
In a perfect world, all land sales would go smoothly and no seller would mislead a buyer either intentionally or unintentionally. In the real world, however, things happen, and sometimes a title doesn’t turn out to be legitimate. And occasionally, buyers don’t find that out until after the investment has been made and the allegedly legitimate title has been transferred.
Here’s where title insurance comes in. If you have it, you don’t have to worry about losing the investment that you’ve put into a property if it turns out that it was not actually within the seller’s rights to list and sell it. It comes in handy in instances of ownership disputes, as well as in circ*mstances where the seller had a lien, unpaid taxes, or another property issue that should have prevented them from selling.
Do note that title insurance is different from mortgagee title insurance, which your lender will require you to purchase. Mortgagee title insurance protects your loan provider from title defects, while title insurance protects you.
Cost of Title Insurance
The price of your title insurance will vary depending on who you purchase it from. In general though, expect to spend of the amount you have agreed to purchase the property for. Even if you’re not keen to add another closing cost to your sale, it’s a small price to pay for the protection that you get. If you’re in a strong market position, you may be able to get the seller to cover the cost of your title insurance (mortgagee title insurance, however, is always the responsibility of the buyer).
Don’t Forget to Do a Title Search
Another key task in protecting yourself against title defects is to perform a title search before closing on the deal. The title insurance company you plan to use should do this for you, but if they don’t, talk to your real estate agent about other ways to have the title search done. This search will reveal whether there are any hidden title defects that you need to know about, and will ensure you get this information prior to making a considerable investment.
So, Title Insurance: Yay or Nay?
It is almost always going to be a good decision to spring for title insurance, whether you end up needing it or not. Even if a comprehensive title search doesn’t turn up anything suspicious, title insurance ensures that you will have nothing to worry about and that your assets are safe. When in doubt, the more protection you have, the better.
This is a contributed post.
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Do You Need Title Insurance When You Buy Land?
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FAQs
Since an extended policy covers many “off-record” defects in title, the insurer will typically require a survey of the property to be insured. Since title insurance is required by your lender, the lender should specify the type of lenders policy required.
Why is title insurance important? ›
Title insurance is a contractual obligation that protects against losses that occur when title to a property is not free and clear of defects (e.g. liens, encumbrances and defects that were unknown when the title policy was issued). Title insurance also guarantees loan priority.
Who pays for title insurance on land in Texas? ›
Generally speaking, the seller pays for their own title policy to ensure that the buyer receives a good and marketable title with no encumbrance or defects; while the lender will require the buyer to purchase a lender's title insurance to protect its interest in the property.
Is title insurance required in Texas? ›
Is it required? Texas does not require title insurance. The lender will require you to buy a Loan Policy of Title Insurance to protect their interest.
Who typically pays title insurance in California? ›
It has been the practice in Northern California that the buyer customarily pays the premium for title insurance, or occasionally the premium is split between buyer and seller. In almost every county, the buyer pays the lender's policy premium. The parties are free to negotiate a different allocation of fees.
Is owner's title insurance a good idea? ›
Title insurance can protect you if someone later sues and says they have a claim against the home from before you purchased it. Legal claims could come from a previous owner's failure to pay taxes, or from contractors who say they were not paid for work done on the home before you purchased it.
What is the disadvantage of title insurance? ›
What is the disadvantage of title insurance? The main disadvantage of title insurance is its cost, which can be a significant expense for some buyers, but it's worth it to protect your ownership rights.
How much does title insurance cost in California? ›
Title insurance costs in California range from 0.5% to 1% of your home sale price. While it may seem huge, it's a small price to pay compared to the $106,000 that buyers lost on average in title fraud in 2023. However, Y-O-Y, there's been a 20% drop in fraud, as many home buyers are opting for title insurance.
Who should have title insurance? ›
A lender will always require the borrower to purchase a lender's title insurance policy before obtaining a home loan, and the policy is usually issued by the title company to mark the conclusion of their title search.
How much does title insurance cost in Texas? ›
How much is a title policy in Texas? The cost of a title policy in Texas can range from 0.9% to 0.6% of the property value. Generally speaking, the higher the property value, the lower the cost of the Texas title insurance policy on that property.
The cost of title insurance in Texas usually ranges from 0.5% to 1.0% of the home's purchase price. This means if you buy a home for $200,000, you might pay between $1,000 and $2,000 for title insurance.
How long is title insurance good for in Texas? ›
It's good for as long as you own the property. Loan policy: Protects the rights of the lender. It's good until the loan is paid off.
How much is owner's title insurance in California? ›
Title insurance costs in California range from 0.5% to 1% of your home sale price. While it may seem huge, it's a small price to pay compared to the $106,000 that buyers lost on average in title fraud in 2023. However, Y-O-Y, there's been a 20% drop in fraud, as many home buyers are opting for title insurance.
What are the two types of title insurance in California? ›
In California, there are two types of title insurance policies. The CLTA (California Land Title Association) policy insures the property owner and the ALTA (American Land Title Association) is an extended coverage policy that insures the lender against possible unrecorded risks excluded in the CLTA policy.
Do you need proof of insurance for a title transfer California? ›
The California DMV will not ask you to provide proof of liability insurance when you are going to transfer ownership of a vehicle. However, it is still required to have it to operate a vehicle in California.
Is title insurance the same as homeowners insurance? ›
HOW IS TITLE INSURANCE DIFFERENT FROM HOMEOWNER'S INSURANCE? One of them is concerned with the ownership rights to the property, while the other one provides protection if there is a loss on the property itself. TITLE INSURANCE provides coverage against loss due to liens and defects on title.
