What If I Have Title Insurance and I Get a Legal Claim for A Lien Against the Property?

Are you familiar with title insurance? Individuals shopping for a new home might come across a series of issues when purchasing a house with an unclear title. In this case, as a new owner, you are likely to have a problem with your rights to ownership of the property.

Some of the most common problems for homebuyers include conflicting wills, fraud, forgery, missing heirs, undisclosed heirs, prior liens, errors in deeds, mistakes in error examination, unpaid taxes, incorrect marital status representation, etc. It is of the utmost importance for a title search to be performed to avoid such scenarios.

There are numerous insurance companies, such as the Primary Abstract Title Insurance Company, providing residential, commercial, and investment property services.

We hope the information below assists you in understanding this insurance.

What is title insurance?

In order to gain insight into this type of policy, individuals should first understand the meaning of the term title. It refers to the legal rights of a person to possession and ownership of a land. When a land is sold, the rights to this asset should transfer from the previous owner to the current one, and a deed should be filed to the corresponding register of deeds office in the place where the land is located.

Nevertheless, other people might become interested in your new property or file a lien on it, such as the owner along with its family and heirs, contractors, lenders, governmental bodies, judgment creditors, and the IRS. A claim can arise out of nowhere, even after years of owning the property. Such issues usually happen because another person claims to have ownership rights, which you weren’t aware of when buying the property.

In an attempt to avoid such matters, buyers should choose a reputable insurance company to conduct a title property search before finalizing the purchase. This type of search determines if there are potential unrecorded documents, unreleased liens, unpaid taxes, illegal conveyances, etc. Individuals might purchase real estate without having any clue about such problems.

Public record examinations can be helpful in discovering such issues, but it usually takes months or years before potential problems are discovered. Anyhow, by having title insurance, buyers are entitled to obtain coverage for the legal fees or claims that result from a dispute. The purpose of these policies is to provide protection from a claim filed against a property prior to purchasing it. Any new claims filed against the current owner aren’t covered. Click here for a definition of title insurance.

Types

In terms of the types of title insurance, homebuyers should know about two types of policies, moneylender’s policy, and owner’s policy. The former is created to provide protection to the lender only. When a borrower takes out a home loan, the lender is most likely to take out a policy whose amount equals the loan sum. The coverage of this policy is effective until the loan term ends, and the mortgage is completely paid off.

Nevertheless, the owner’s property equity is not included in the coverage. Therefore, borrowers should consider taking out an owner’s policy to protect themselves. The owner’s insurance is designed to protect the entire cost of the house. Most owners assume they have protection against liability just because they paid for the policy of the lender or because a title search was conducted.

It’s paramount for buyers to keep in mind that the lender’s policy only provides coverage for the loss of moneylenders but not their own loss. Consequently, you are advised to invest in an owner’s policy to provide coverage in the event of invalid deeds, recording errors, forged documents, incorrect descriptions of properties, unpaid liens, deed indexing errors, undisclosed encroachments, and easements, claims from ex-spouses, and heirs, etc.

Common title defects

There are certain title claims that buyers should be aware of, as they have the potential to affect their property rights. These defects include liens, easements, and encumbrances. For instance, liens are placed on properties by contractors, lenders, or authorities that have not been paid. It’s of tremendous importance for buyers not to end up paying the unpaid bills of the former owner.

In addition, lien rights arise for the purpose of ensuring that contractors, subcontractors, and material suppliers are promptly paid for their services. These rights also go in favor of counties and cities in the event of code violations and the inability to pay public utilities. Liens should be settled by the seller prior to closing a title insurance policy. Follow this link, https://www.britannica.com/topic/lien, to learn more about the meaning of lien in property law.

Nevertheless, if the buyer discovers a lien on the purchased property, which predates his/her ownership, a title claim should undoubtedly be filed. The job of the insurance company is to investigate to check whether the lien was paid but never recorded or it was not settled for other reasons. If the claim turns out valid, the title insurance company is obliged to take the required steps to eliminate the lien.

An easement is a term that stands for the right of an individual or company to use your property, although you are the legal owner. For instance, on properties where utility lines run in the backyard, the corresponding utility company is provided with an easement, which permits the workers to access your land when they have to work on the lines.

Furthermore, buyers often face claims from third parties, claiming to have a right to go through or drive over your property to access theirs or to access a roadway. In case you discover a third party has taken an interest in your land, make sure to review the title policy exceptions to coverage. Upon discovering no such exception, it means you have a title claim.

Encumbrances include not just liens but also easements, along with zoning laws and homeowners’ association restrictive covenants. Property boundary disputes are a common problem involving two adjacent landowners claiming the same land. In most cases, such a problem arises when the former owner decides to subdivide the lot. There are also many situations when such disputes arise because of a neighbor putting up a fence on the land of the other neighbor.

Do you need such insurance?

Homebuyers often wonder whether they require title insurance when buying a new home or refinancing. In the first scenario, most buyers believe they need no additional protection due to being the first owner of the house. Nevertheless, the land on which the home is built might have had a few owners. Also, it is possible for builders not to pay the material suppliers and subcontractors, which leads to a lien against the land.

Despite buying a new home, you should ensure maximum protection against the above-mentioned issues. Getting such an insurance policy is the perfect solution, as it covers the legal expenses involved in the defense of the claim. Others wonder whether they need such insurance when refinancing. In the event of refinancing, homeowners take up a new mortgage without changing the lender.

Nevertheless, issues are still likely to appear in the long term, such as facing judgment liens for child support, unpaid taxes, and homeowners’ association dues. The lender will definitely require a policy to shield its investment and interests in the refinanced home.

If you have already invested in an owner’s policy, there is no need to purchase a new one. The policy is valid provided you or your heirs show an interest in the house. Homeowners can even be qualified for a discount in case it has been less than ten years from buying or refinancing the house/apartment.

A final note

Such insurance is essential in protecting your home buying interests.

Hire professionals to lend you a hand!