What is Title Insurance and Why do you Need it?
By Cody McCaughan, Esq.
Buying a home is a big financial risk. For most people, it is the biggest financial investment they will make in their lifetime. It is important to protect such a big purchase by ensuring that no one can challenge you as the rightful owner of the property, and that you have purchased the property free and clear of all liens. Title insurance makes that possible.
What does Title Insurance cover?
Title insurance protects owners and lenders from defects in title. Such defects can include another person claiming ownership, improperly executed documents on prior sales, tax errors, liens, easements, mortgages, and fraud. If such defects originate from before you purchased the property, your title insurance policy will likely cover the cost of remedying the defect, i.e. paying off a mortgage incurred by the seller or unpaid taxes. In addition, if you are sued by someone claiming an ownership interest or lien on your property, title insurance can cover the cost of an attorney to defend your rights in the lawsuit.
What are Title Searches?
When a property is being purchased, the contract requires that the seller convey “marketable title” to the buyer. General speaking, this means that the seller must be able to sell the property free and clear of any liens or other significant encumbrances that will affect the buyer’s use of the the property, and the buyer’s ability to sell the property someday. However, you cannot just take the seller’s word that they own the property and can convey marketable title, you have to conduct a title search. A title search is performed by sifting through the public records of the county where the property is located to find all recorded documents which affect the title to the property. This includes deeds, mortgages, liens, judgments, easements, utility agreements and many other types of documents. After the title search is completed, you can determine exactly what documents the seller needs to sign, or liens the seller needs to pay off, in order to convey marketable title to the buyer.
Is Title Insurance mandatory in Florida?
Title insurance is not technically mandatory in Florida, however, it is virtually unheard of to purchase a property without also getting a title insurance policy. This is because the cost of title insurance is very reasonable compared to the overall price of the property, and the potential liability of the risks that it protects you from. Also, if you are purchasing a property with a lender, the lender will almost certainly require title insurance in order to loan you the money to purchase the property. Further, if you were to try to purchase a property without title insurance, the fees associated with having a reputable law firm or other company handle the sale would likely cost around the same as if you were to just get the title insurance policy in the first place.
Why is Title Insurance important?
If the seller has a mortgage on the property, and you buy the property without the seller paying off the mortgage, the bank can now foreclose on your home. If the seller has a judgment against him that has attached to the property, and you buy the property, you are now responsible for that judgment. If you purchase a home with a pool, and the pool turns out to overlap slightly with a neighbor’s land, the neighbor can force you to rip out your pool. If the seller deeds a property to you, but also deeds it to someone else on the same day or around the same time, that other person may actually be considered the valid owner of the property, even though you already paid the full purchase price to the seller! These are all instances in which title insurance can protect you and make you whole for the financial damage you have suffered.
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Purchasing a property can be complex and confusing. Contact us at (305) 928-4190 for a no-charge consultation, where we will advise you how to complete a purchase while protecting your financial interests.
