When making a major purchase, it’s always smart to guard your investment and mitigate risk. During the homebuying process, title insurance protects you, as the buyer, from financial loss, massive headaches, and potential legal expenses during and after the real estate transaction.
But do you need to bother with it if you’re just buying a piece of vacant land that doesn’t include a house or other structures? The short answer is yes, you should. Here’s some vital information about title insurance and why it makes sense to defend your interests any time you’re acquiring property.
What is a title — and why you need to insure it
A title is a legal document that proves ownership of an asset like a house, a piece of land, a boat, or an automobile. They can be bought, sold, bequeathed, or inherited, and titles can also cover intangibles like copyrights, patents, stocks, or bonds.
It’s basically a bundle of rights and privileges that allows you to enjoy ownership and all the perks that go with that, up to the extent of the law in your area. You’re free to do whatever you like on your property, excluding things that are illegal, of course. And if you’ve bought somewhere that’s ruled by a homeowner’s association, you’re contractually bound to abide by their rules and by-laws.
After you make an offer on a piece of property, an in-depth title clearance is performed as part of the closing process. This is an absolutely crucial aspect of any real estate transaction, especially if the property in question is considered historical or has changed hands several times.
A knowledgeable and experienced professional will make an exhaustive search of all available public records and documents to ensure that there are no clouds or defects on the title and that the current owner has the right to legally sell the property.
What can cause a cloud on a title?
Even in this technologically advanced age, mistakes can happen. Improper execution of documents during a past transaction can come back to haunt buyers and sellers with no warning. Software glitches, power outages, and plain old human error can end up executing flawed or improper documentation that create a world of hassle during closing.
Another cause of title defect is due to ongoing foreclosure proceedings. If the seller has defaulted on a previous mortgage on the property, that lender has every right to initiate the foreclosure process, which will definitely complicate any pending transactions.
A lien is a relatively common hindrance to a smooth title transfer. These occur when a property owner owes someone money and hasn’t paid it back yet. All liens against the property must be satisfied before it can be purchased, as lenders won’t approve a mortgage until the debt is paid off.
For example, if the previous owner forgot to pay property tax assessments, the municipality could file a lien, which means that you would have to pay. Liens can also be filed for missed child support or alimony payments.
If the land was once part of a willed estate, then there could be a lingering probate issue that you are unaware of. Death certificates are misplaced over time and property ownership can become murky when there are undefined or competing heirs.
Other issues like forgery and fraud, hotly contested divorces, or mental incompetence can all contribute to a defective title and throw a monkey wrench into your property buying plans.
How can title insurance help?
Title insurance is unusual in that it is backward-looking — it protects you against claims that already exist, but that are unknown as of the date of your closing. It’s also paid as a convenient one-time premium instead of an ongoing monthly payment.
In the event that someone sues you, or even your distant heirs far in the future, regarding the property in question, your title insurance policy will help protect their interests in the case of liens, boundary disputes, or unpaid judgments.
In a court of law, the rights of creditors and lenders can often outweigh those of someone who purchased a property with a defective title. This kind of title insurance policy keeps you from losing your land as well as your time and money.
Make the right move
Even if the plot of land you love is part of a new development, it just makes good financial sense to defend your investment against the unknown, clerical errors, and desperate fraudsters out to steal your hard-earned funds.
At Landtrust Title Services, we offer a comprehensive menu of services to assist you through every aspect of purchasing property, from rural agricultural land to luxury urban townhomes. We’re delighted to provide highly personalized support to every one of our clients — and we’re ready to help you today. If you have questions about ordering a survey, buying title insurance, or any detail of the closing process, reach out to us today!