Many first-time home buyers are perplexed by the unfamiliar forms and processes involved in residential real estate transactions. From the initial offer to closing, real estate purchases normally follow a series of steps designed to protect buyers and sellers from one another and from acting with unwarranted haste.
Despite this general unfamiliarity with the process, a first-time buyer is likely to know some of the benefits of risk mitigation tools to protect their prospective investment, such as inspection of the property prior to closing and purchasing a homeowner’s policy once the sale is completed. A buyer may not, however, be aware of the advantages of procuring title insurance to protect their investment.
Even the most thorough title search cannot absolutely guaranty against title hazards like forged deeds, undisclosed or missing heirs, misinterpretations of wills, instruments executed via use of an invalid or expired power of attorney, fraud, mistakes in recording legal documents, deeds by persons recorded as single who were in fact married, and liens for some types of unpaid taxes. These are commonly referred to as “undiscovered claims” or “hidden risks.”
Title insurance is a risk mitigation tool every prudent homebuyer should carefully consider in order to minimize exposure to such risks. Title policies protect a homeowner by indemnifying them from risk of loss due to adverse claims against the title to his or her home due to hidden title defects. In other words, if a third party were to assert a claim to the property – perhaps an heir of a couple whose marital status and the validity of their divorce at the time of transfer resulted in one or the other failing to be removed from the title – a new homeowner may be forced to defend his or her claim to title of the property in court.
A title insurance policy serves as a way to lessen the potential impact of these risks. Title insurers pay to defend their customers against any lawsuit attacking a homeowner’s title, paying for attorney fees and court costs. Some policies are available for a one-time premium that remains in effect so long as the buyer or buyer’s heirs retain an interest in the property.
Further, holders of title insurance may be able to better market their properties, speeding up negotiations when an insured is ready to sell or obtain a loan. This can function to eliminate delays and unexpected issues when the buyer finally transfers title to someone else.
For first-time home buyers – or even those closely connected to the real estate market – insuring title to a purchased property is a simple and relatively inexpensive way to protect an investment that for many may be the paramount investment of their lives.
Attorney Nicholas N. Sperling