For most people, the purchase of their home is the largest transaction they will ever make. Thus, it is crucial for a home purchaser to get the property that they bargained for: with a good title, and free and clear of any encumbrances except the ones that the purchaser consents to.
Title insurance is not a guarantee that the title is without defects. Some title defects may be undiscovered before closing and some title defects may arise after closing. It is always a safe bet to obtain title insurance to indemnify the damages as a result of title defects.
For example, if there is a tax lien on the purchased property, the homeowner cannot legally sell the property. Having title insurance in this situation can help impose the financial burden of the tax liens on the seller instead on the buyer. Without title insurance, the buyer may lose all rights to the title if he fails to pay any unsettled property taxes.
This indemnity insurance does not repair the title defect; it only compensates the homeowner for the actual monetary losses experienced as a result of the defect. For instance, a fraudulent deed is made for the transaction of the property. In this case of complete loss of title, the insurance title policy may work wonders. Through an insurance title, the insured may be allowed to recover the existing market value of the purchased property as per the terms and conditions of the insurance policy. Therefore, it can be said that the measure of the compensation solely depends on the nature of the defect.
Title Insurance – The Best Protection In Case Something Comes Up Down The Line
Some people may find title insurance pricey and contemplate merely relying on the real estate lawyer’s opinion, however, this move can be highly risky for them. If the title defect is discovered down the road, the client has a claim against the lawyer (which will be covered by the lawyer’s errors and omission insurance), only if the client can prove that the cause of loss is within the parameter of the retainer and the lawyer acted negligently.
In addition, the lawyer can only give an opinion on the title condition as of the point of closing. At times, people become victims of title fraud after they took possession of the home. In this situation, the happening of fraud is out of the control of the lawyer, thus, it is unlikely that the client has any claim against the lawyer who gave opinion on the title. Subsequently, the client will have to consider other options such as Title Assurance Funds or potentially endure the consequence alone. Given the aforementioned reasons, a lot of law firms avoid representing the client if the client refuses obtaining title insurance because of the potential high risks.
What Other Coverages Does Title Insurance Provide Apart From Title Fraud?
Typically, an owner’s policy furnishes coverage for the following losses: any title defect and charge, lien, or encumbrance on the title, unmarketability of the title, lack of access to and from the land. Residential policies may also insure the following risks if the buyer is not aware of the risk before closing: zoning, building and use restrictions, right of occupancy restrictions, unrecorded construction liens.
If a lawyer specifically requests coverage over a certain defect, the insurer may choose to insure over the issue if the defect is low risk. The policy also contains some exceptions such as environmental claims, aboriginal land claims and property-specific exceptions.
A real estate lawyer will review the policy with the purchaser and help the purchaser to be aware of the face amount, limitations and exceptions of the policy. In addition, the lawyer will advise whether the purchaser should have more than one policy and advise about the future conduct that might cause a lapse or termination of the coverage.
On a final note, a real estate lawyer is prohibited from receiving any referral fees from recommending one insurer over the other and must disclose to the client that no commission or fee is being furnished by the insurer. So, don’t fret over this “extra” amount of charge.
It is for your protection and your lawyer has your best interest in mind. Ayaz Mehdi Professional Corporation has experienced lawyers who can walk you through purchase of your dream home.
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