Picture this: you’ve just purchased your dream home. One day you receive a call from your real estate attorney who has bad news: Former owner Sally didn’t actually own the property–her estranged husband Tom did, and he wants it back. Believe it or not, you may no longer have legal right to ownership, and you don’t get your money from the purchase back. Unfortunately, this nightmarish situation and others like it can and do happen. What can you do to prevent it?
First off, if you own the title or deed to a property, it means you are the legal owner. But if there is a problem with the title–a title “defect”–you inherit this problem. Here’s a different example: Say the former owner hadn’t paid property taxes for the last ten years. When he sells the property to you, those taxes remain charged against the property and you are held legally responsible to pay them.
This is where title insurance can protect you. During the closing process, the title insurance company conducts a comprehensive title search to make sure that the title is clean. They check into the history of the property’s ownership and make sure there are no current “liens” or unpaid mortgage payments.
Unlike most insurance policies, title insurance is a one-time fee that covers your property for as long as you own it. If the insurance company missed something–like Tom the rightful owner–then the insurance company must cover your losses.
If you plan to take out a loan to buy your home, you are already required to purchase lender’s title insurance. But it’s important to know that this type of insurance will only cover the outstanding portion of the loan. If, for example, Tom the rightful owner makes his claim, you won’t get anything back from the payments you’ve already made–including the down payment. Fortunately, adding owner’s title insurance is relatively inexpensive.
The only time you can purchase title insurance is at the property closing. Although buying title insurance is not mandatory in South Carolina, I strongly encourage my clients to purchase it.
There are various types of owner’s title insurance, and the kind you should purchase depends on your specific circumstances. To have these and other questions about a property purchase answered, give me a call at the firm of Bagwell & Corley.