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Title insurance: What is it and why do you need it?

If you’re in the market to buy a house in Santa Cruz, you’re bound to encounter various types of property insurance, including title insurance. This is a type of insurance that is essential for homeowners, yet not many first-time homebuyers know much about it. 

Here’s what you need to know about title insurance: 

Why is title insurance important?

Title insurance is designed to protect homeowners from any financial losses resulting from disputes regarding the property’s title. What sorts of disputes? You may ask. Essentially, if your seller doesn’t actually have free and clear ownership of the property you’re buying, they may be unable to rightfully transfer ownership over to you. 

A renter could, for instance, pose as a seller. Or you might be buying the home from a bachelor who, as it turns out, still co-owns the property with his ex-wife. Without title insurance, you could end up losing the home altogether.

How does it work?

To purchase title insurance,  you need to pay a one-time premium during escrow or before the closing of the property. Your closing agent or attorney will select the title insurer.

After you purchase the title insurance, the title company will:

  • Run a deep search through transaction records
  • Detect any issues related to the property’s ownership
  • Identify liens, claims, or encumbrances on the property
  • Survey deed, tax, and court records
  • Verify ownership history to ensure there are no errors

In California, the buyer usually pays the premium for title insurance, although the premium is occasionally split between buyer and seller. The process is pretty much standard and typically goes without a hitch.

What is the difference between the owner’s and lender’s title insurance policies?

An owner’s title insurance policy is for the homeowner’s protection in case an issue with the property title arises. If someone sues you, for example, your owner’s title insurance covers any losses you incur from that claim. The most common disputes a regular owner’s title insurance covers are:

  • Tax liens
  • Deed errors or omissions
  • Forged documents
  • Fraud
  • Errors in the public records
  • Third-party claims to the property

Some companies offer extended insurance coverage for owners of houses for sale in Santa Cruz, CA to include protection for inaccurate surveys and permit and zoning violations.

The lender’s policy, on the other hand, covers the loan amount. The insurance stays in effect until the loan is fully paid, refinanced, or when the home is put on the market again.

Both owner’s and lender’s policies include the cost of your down payment, principal payments, and any improvements you’ve made to the property.

Benefits of having an owner’s title insurance policy

Why is it worth getting an owner’s title insurance policy? It:

  • Protects your investment – Buying a home is a huge investment. It is often one of the most expensive purchases anyone makes during their lifetime. Having title insurance reduces the risk of this investment and protects your property rights from unforeseen legal and financial issues.
  • Peace of mind – The entire home buying process can be stressful, particularly for first-time homeowners. With your owner’s title insurance, you can breathe easy knowing you’re fully protected.

Title insurance is one of the many things you need to know before you start looking for homes for sale in Santa Cruz County, CA.

For more help, get in touch with the top realtor in the area. Call me, Amber Melenudo, at 831.661.5591 or send an email to amber(at)davidlyng(dotted)com.