If you are buying a piece of real estate with a mortgage, then the lender will require you to have a lender's policy and Title Insurance. Make sure that you all add owner’s coverage to protect your personal interest as well. However, if you are purchasing a home or land with cash, purchasing a Title Insurance Policy is optional. This is one option that I strongly recommend you do not exercise! I believe everyone should buy Title Insurance for any real estate transaction! Why?
Did you know that according to ALTA, the American Land Title Association, approximately 25% of all residential real estate transactions will have some type of issue with the title? While it is relieving to know that most of these items are successfully resolved before closing, it also makes
you realize how critical it is that you purchase title insurance. Liens, claims, easements, or other challenges placed on your title, that arise after closing, or were overlooked in the title search prior to closing, will be covered by the Title Insurance company. The Title Company will be responsible for any monetary damages that the owner incurs due to a defective title.
When you purchase a new home, or piece of real estate, you receive a copy of the deed at closing. But exactly how was this deed transferred from the previous owner to you and how can you be sure that the deed is free and clear of any unsatisfied liens or judgments? Well, prior to closing, the closing attorney will conduct a thorough title search. They will research official public records for mortgages, judgments, easements, street and sewer assessments, taxes, levies, and other matters that may have an impact on the property. The title must be clear of any problems, or the seller must resolve any problems, before title can be transferred and the closing can take place.
However, information about a piece of property and any liens against it may be filed in different ways. They can be filed under the seller's name, the owner's name, by lot number or street address. Although title companies are very thorough, mistakes can happen and occasionally a problem may be overlooked. Owning a title insurance policy protects you from unexpected financial expenses, or even disaster in rare cases!
For instance, let’s say you purchased a piece of property to build your dream house on. But, after closing on the land, it was discovered that there were some old liens still in place against the property from years ago when the property was part of a larger farm. These liens were recorded under the original piece of property and were not discovered in the title search. You would not want to build a home on a piece of property that had existing liens in place. If you had purchased Title Insurance at closing, then the title company would be required to assist you in obtaining releases from the appropriate parties to have the liens removed. They would work to resolve the problem so that you would be allowed to build your home on your land, with a clear title.
I once had a homeowner who had paid cash for an investment property but had wisely purchased Title Insurance at closing. Although the closing attorney had done a title search, somehow they missed an IRS Tax Lien that had been recorded on the property against the previous owner. The home closed and the deed was transferred to the new owner ~ along with the existing IRS tax lien! When this was discovered, the Title Company was responsible for taking care of this lien and providing clear title to the current owner. Had this investor not purchased a title insurance policy, they would have been responsible for paying off this tax lien in order to gain clear title to their own property!
The risk of having a claim for a defective title is rare. In fact, ALTA states that the expense ratio for title insurers averages about 90% compared to the 30% ratio for property and casualty companies. But, purchasing a home is the largest single investment that most people make in their lifetime. Due to the size of this investment, it is prudent to purchase Title Insurance, despite the odds of ever needing it.
If you are purchasing a piece of real estate in Tennessee, you can rest assured that the deed will not transfer, and closing will not occur, unless a complete and thorough title search has been conducted. But please, make sure you purchase an owner’s Title Insurance Policy…even if the odds of needing it are very low. Just remember, not all stories about title problems end happily!
I’d love to help you find a new Murfreesboro TN home, or dream home located anywhere in Middle TN! Real estate in Murfreesboro, Brentwood, Franklin, Smyrna, and surrounding areas is a great investment and interest rates are at historical lows. Please give me a call at 615-566-3789 or search the entire MLS with my FREE IDX Home search in our current buyer’s market!