When buying a home, one crucial step is reviewing the title report. This document provides a detailed history of the property,
including past ownership, liens, and any other claims against the property. Understanding the title report is essential to ensure
that there are no surprises after you’ve purchased your home.
However, even a thorough title search can sometimes miss hidden issues, such as forgery, undisclosed heirs, or errors in public
records. That’s where title insurance comes into play. There are two main types of title insurance: lender’s title insurance and
owner’s title insurance.
When you get a mortgage, your lender will likely require you to purchase a lender’s title insurance policy. This policy protects
the lender by covering the loan amount if the ownership of the property is legally contested. However, this policy does not
protect your financial investment in the property.
To safeguard your interests, you may consider purchasing an owner’s title insurance policy. This policy protects you from
potential title defects that may not have been identified during the title search.
Below, we’ll dive into the specifics of what a title report is, how to interpret it, and why purchasing owner’s title insurance may
help protect your investment. Understanding these aspects will give you peace of mind and help ensure a smooth home-buying
process.
What is a Title Report?
A title report is a document that outlines the legal status of the property you are purchasing. It includes information about the
property’s ownership history, any existing liens, easements, covenants, conditions, and restrictions (CC&Rs), and any other
issues that may affect the property’s title.
Key Components of a Title Report
- Property Description: Specific location and boundaries of property.
- Ownership Information: Outlines the current property owner and may include a history of previous owners.
- Liens and Encumbrances: Liens are claims against the property for unpaid debts, such as mortgages, taxes, or contractor
fees. Encumbrances can also include easements or restrictions that may affect your use of the property. - Easements: Easements are rights granted to other parties to use a portion of your property for specific purposes, such as
utility lines or access roads. - Covenants, Conditions, and Restrictions (CC&Rs): These are rules and regulations governing the use of the property, often
put in place by a homeowners’ association (HOA). - Tax Information: This section details property taxes and any outstanding tax payments.
Things to Look Out For
- Clear Ownership: Ensure that the seller has clear and marketable title to the property. The report should confirm that the
current owner has the legal right to sell the property. - Liens and Encumbrances: Check for any outstanding liens that could affect your ownership. These need to be resolved
before or at closing. Common liens include unpaid property taxes or home improvement debts. - Easements: Understand any easements that may impact your use of the property. For example, a utility company may have
the right to access a portion of your yard, which could affect future landscaping or building plans. - CC&Rs: Review any covenants, conditions, and restrictions to ensure they align with your plans for the property.
Restrictions could include limits on building additions, types of fencing, or even the color of your home. - Tax Information: Verify that property taxes are up to date and assess the annual tax amount to budget accordingly.
Steps to Take
You’ll want to review the report carefully. If there are terms or sections you don’t understand, don’t hesitate to ask your real
estate agent for clarification. Work with your real estate agent and the title company to address any issues found in the report.
This might involve negotiating with the seller to clear liens or adjust the purchase agreement based on CC&Rs. And, always
consult with your real estate agent, attorney, or title company to fully understand the title report’s implications. They can provide
valuable insights and help you navigate any complexities.
Owner’s Title Policy
Purchasing an owner’s title policy when buying a house can be a significant decision. Here are some pros and cons to help you
decide.
Pros of Getting an Owner’s Title Policy
- Protection Against Title Defects: An owner’s title policy protects you against potential title defects that may not have been
identified during the title search, such as forgery, fraud, undisclosed heirs, or mistakes in public records. - Legal Defense: If someone challenges your ownership of the property, the title insurance company will cover legal costs and
defend your title in court. - Peace of Mind: Knowing that your investment is protected from unforeseen issues provides peace of mind and financial
security. - One-Time Premium: You pay a one-time premium at closing, and the policy remains in effect for as long as you or your heirs
own the property. - Enhanced Policies: Some title insurance companies offer enhanced policies that provide additional coverage for issues such
as zoning violations or building permit violations.
Cons of Getting an Owner’s Title Policy
- Cost: The premium for an owner’s title policy can be a significant upfront cost, though it varies depending on the property’s
value and location. - Not Always Required: Unlike lender’s title insurance, which is required by lenders to protect their investment, an owner’s
policy is optional. If you believe the risk is low, you might choose not to purchase it. - Exclusions and Limitations: Title insurance policies have exclusions and limitations, meaning not all risks are covered. It’s
essential to read and understand the policy terms. - Redundancy: If the property’s history is well-documented and has no issues, some might view the policy as an unnecessary
expense.
While an owner’s title policy adds to the overall cost of purchasing a home, it can be a valuable investment for protecting your
ownership rights and providing peace of mind. Consider the specific circumstances of the property, consult with a real estate
attorney or professional and weigh the potential risks and benefits before making your decision.
