Avoiding a Home Buying Horror Story

JAN 14, 2020

We've all been to the movies and seen the common mistakes made in horror movies.  We scream "Don't split the party!" or shake our head in dismay when someone tries to read the dark book out loud as a "joke."  We think that if the zombies did rise, we'd know better and would survive.  Maybe - but maybe not!

You see there is one potential horror story awaiting many home buyers and it is vital that knowledgeable agents help them avoid trying to run away in high heels.  The potential horror is losses resulting from unknown defects in the title to a property that occur prior to the closing of a real estate transaction but do not show up sometimes until long after the closing.  Whether its zombie deed holders who refuse to die, dishonest sellers or a hidden lien waiting to jump out and hurt a homeowner many buyers fail to take the most important step to protect themselves with the right title insurance.

Buy Both!

Title insurance comes in two forms.  The first is a Lender's insurance policy.  Most mortgage lenders require the purchase of lender's title insurance for an amount equal to their mortgage loan. A lender's policy is issued to the lender. The policy provides the lender protection from covered losses arising from any previously unknown defects in the title that have become known only after the insured property has been financed. The lender's insurance policy will remain in effect and decreases in coverage based on the outstanding balance owed on the mortgage until the amount financed has been repaid or until refinancing has occurred. The Lender's policy provides no protection to a home buyer.

But there is another kind of title insurance, the Owner's Policy.  An owner's policy is issued to a home buyer. It provides the home buyer protection from covered losses arising from any previously unknown defects in the title that existed at the time of purchase, and became known only after ownership of the property was acquired. An owner's policy remains in effect as long as you own or maintain an ownership interest in the insured property and in most cases even after you sell the property.  It will also continue to protect your heirs.

Since this isn't a required purchase for many transactions, acquiring an owner's policy can provide the peace of mind needed to sleep soundly at night.  In many cases, sellers pay all or part of an owner's title policies as part of their obligation in the transfer of title to the home buyer. The party paying for the owner's policy can be negotiated during the purchasing process. If you're an agent talk to your buyers and educate them on their options.

Horror movies are entertainment because there's no real-world impact but lack of the right kind of title insurance can destroy the largest investment some families will ever make.  Be the hero and make sure they survive till the end with both Lender and Owner title insurance policies.


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