What You Need to Know When Purchasing a Home.

The Title Search

Before purchasing a home, a prospective buyer must obtain a valid title search for the subject property. The title search provides the buyer with basic information about the real estate and how it has changed hands and developed over the years. The title search will also show whether the property is encumbered by any mortgage, lien, or active legal dispute. Most importantly, the title search demonstrates that the seller indeed owns the property and can legally sell the home to the buyer.

 

The Basics of Title Insurance

Title insurance protects buyers against title search errors, undiscovered or latent title defects, and title disputes after the property has already been purchased.

Some title search errors are self-explanatory. A title searcher may miss some detail within the Town Hall records and the purchaser should be protected from such negligence. However, there are other title defects that simply cannot be discovered during the title search process. For example, there may be forged documents within the chain of title or documents that the Town Hall has lost or misfiled. Long after the closing date, there may even be other parties who have rights or claims to the property that were not addressed during the closing (e.g. estranged spouses, undisclosed or missing heirs, or judgment creditors). In short, title insurance protects the buyer against much of the uncertainty and risks in purchasing a home.

 

Lender’s Policy v. Owner’s Policy

There are two types of title insurance policies, Lender’s Policies and Owner’s Policies. They are often purchased together as a combined policy, but can also be purchased separately.

Lender’s Policies (sometimes called “Loan Policies”) are required by mortgage lenders and these policies protect the mortgage lender’s monetary interest in the property. The Lender’s Policy ensures that the lender is protected from title search errors and title defects throughout the life of the mortgage. The cost of the Lender’s Policy is based upon the amount of the loan. The Lender’s Policy is a one-time expense that is paid at closing.

Owner’s Policies are technically optional but highly recommended in order to protect the buyer’s down payment and equity in the property. Unlike the Lender’s Policy, the Owner’s Policy ensures that the buyer is protected from title search errors and title defects for as long as the buyer owns the home. The cost of the Owner’s Policy is based upon the sales price of the property. As with the Lender’s Policy, the Owner’s Policy is a one-time expense that is paid at closing.

 

The Cost of Title Insurance

The cost of title insurance obviously varies and depends upon the price of the home and the amount of the mortgage. However, title insurance policies tend to be a relatively small expense in the home-buying process and often cost less than $2,000 for a combined policy.

You can utilize some online calculators such as Old Republic Title Insurance’s Connecticut Title Insurance calculator to get an idea of what you may need to spend for your title insurance policies. Bear in mind, title insurance calculators are estimates rather than definitive costs. You should always consult with a licensed attorney or mortgage broker to find out exactly how much your desired Lender’s Policy and Owner’s Policy will cost at closing.

 

Conclusion

Most buyers in Connecticut purchase both a Lender’s Policy and Owner’s Policy. While the former is usually required, the latter is an “optional” expense that simply makes logical sense. The Owner’s Policy is a relatively minimal cost that offers a great deal of protection. After all, your home is an investment and your home’s title ought to be safeguarded. If there is ever a title dispute, the cost of your attorney fees will greatly exceed the one-time expense of your Owner’s Policy.

Like any other insurance policy, you hope you never have to use it . . . but your title insurance will certainly help you sleep easier at night in your new home.

 

You should always contact a licensed attorney to discuss any specific legal questions that you may have. The following blog post is intended as a general overview of title insurance in Connecticut and is not an attempt to offer specific legal advice.