Home BuyersHome Sellers December 3, 2020

Everything You Need to Know about Title Insurance

Title insurance is a policy that protects you from potential problems when acquiring real estate. When you buy real estate, you’re also buying all of the assets and liabilities associated with that property. So title insurance protects you from any past title problems. Some of these problems can include forgery, fraud, liens, and prior mistakes in legal documents

Types Of Title Insurance

There are two main types of title insurance: lender’s title insurance and owner’s title insurance. Most lenders require the borrower (homebuyer) to purchase a lender’s title insurance policy, which protects the lender. It is important to note that a lender’s policy will not cover the homebuyer from any problems with the title. To protect yourself, consider purchasing owner’s title insurance.

Owner’s title insurance will protect you, the homebuyer, from any aforementioned issues. A title search examines public records and legal documents to confirm the legal ownership of a property before a transaction takes place. It is usually performed by an attorney or a title company. Although this procedure will often identify any title issues or mistakes, sometimes mishaps occur. These mistakes can be costly down the road, so buyers often purchase title insurance to protect them and their mortgage lender from financial loss if there’s a problem with the title after the sale.  

Common Claims

Some common claims filed against a title are back taxes and liens. Liens are a right to keep possession of property belonging to another person until a person’s debt is cleared. It is rare for title companies to miss a lien, but if that does happen, it can cause quite a legal headache for the homeowner. Title insurance can protect from any issues that arise due to uncleared liens. 

A typical title insurance policy covers the following hazards:

  • Ownership by a party other than the one who sold it to you
  • Incorrect signatures on documents as well as forgery or fraud
  • Mistakes in legal papers and inheritance

This type of policy also ensures that there aren’t any outstanding liens for the property. Unlike traditional insurance policies that protect you from future events, title insurance protects you from past events that may not have come up during the purchase of the property.

Title Insurance in Washington State

In Washington state, the owner’s title insurance policy is usually optional and not required by law. You can choose to buy a policy that will cover the full price that you paid for the property.  The Office of the Insurance Commissioner has more information about the process of purchasing title insurance in Washington state. 

It is important to note that the only time it is possible to secure the owner’s title insurance is at closing. You will not be able to purchase a policy if you discover an ownership issue after you’ve bought the property and ownership has been transferred to you.

Bottom Line

Having title insurance protects both the buyer and seller from potential risks that can lead to a considerable amount of stress down the road. It’s important to talk to your real estate agent about these details. They should be able to guide you through the process and provide additional insight. Our local Windermere agents are also here to answer any questions you may have.