Investing in property is one of the biggest financial commitments you can make. As such, it’s important to protect against issues that may compromise that investment.
Most investors purchase hazard insurance to protect against risks such as flood and fire. But, many may not understand the need for owner’s title insurance to protect against threats to legal ownership. Investors can save themselves a lot of potential headaches by understanding the benefits of making the one-time purchase for owner’s title insurance.
Understanding the Importance of Owner’s Title Insurance for Investors
Title insurance can be confusing for investors because there are two types that are addressed during the transaction – owner’s and lender’s. If the property is being mortgaged, lenders will require the purchaser to buy a lender’s title insurance policy to protect its monetary investment. That policy does not protect the purchaser.
Owner’s title insurance is a necessity because it protects the property owners from a financial loss related to ownership of property. In doing so, it can help insure an investment is profitable as opposed to a disaster because of defects in title.
Defects or inconsistencies in title are not uncommon. The role of title companies in real estate closings is to identify any issues that may prevent a legal transfer of title. Some of those issues include, but are not limited to:
- Undisclosed or missing heirs,
- Wills not properly probated,
- Conveyance by a minor,
- Incorrect legal descriptions, and
- Clerical errors in recording legal documents.
An owner’s title insurance policy and can also protect owners from recorded claims against a property, such as liens or judgements.
There are no guarantees that a property’s title is going to be clear when the title search is run. Title insurance insures real estate investors against any faults that may be discovered in the chain of title so that the purchase can move forward. Insurance will also help defend an investor’s title if it is challenged in the search.
While it’s easy to disregard the possibilities of clouds on title, the risk is very real and quite common. Even the smallest, most innocuous issues with title can derail a purchase and need to be dealt with before a purchase can be completed. Without title insurance, any real estate investment is at risk. It’s an important point all investors need to consider when moving forward with a purchase.