Title insurance protects homebuyers and mortgage lenders from the costs associated with some major financial or legal issues. However, title insurance is not quite the same as many other forms of insurance, which typically cover future potential events. Instead, title insurance is a one-time purchase that covers past events and title issues that are not known to you, your lender, and your real estate team at the time a property is sold.
Title insurance helps protect your home purchase or sale from anything that has already happened that might nullify the transfer of title — that is, the right to legally own the property involved in the transaction. Common title issues include undiscovered liens, improper or falsified documentation, and unpaid taxes.
Title insurance is part and parcel of most real estate transactions in Illinois, and has become more common nationwide over the last several years, according to market research.
Still curious about title insurance — and what it really means for your real estate transaction? Let’s explore the ins and outs of title insurance, and why it’s important for buyers and sellers to keep in mind:
Types Of Title Insurance
Broadly speaking, there are two main types of title insurance — one for homebuyers, and one for lenders. Each type protects a different party involved in the home sale.
If you are the buyer, you will likely be required to purchase a lender’s policy, sometimes also called a loan policy. This type of policy protects your mortgage lender in case there are any issues found with title to the property. While the new homeowner covers the cost, this policy does not protect the buyer — it only protects the lender.
An owner’s policy helps protect the homebuyer. This policy is purchased once and covers the homeowner for the entire span of time in which they own the property. Generally speaking, in Illinois real estate transactions the seller of the home will cover the costs of the owner’s title insurance on behalf of the buyer, as a gesture of good faith.
What Does Title Insurance Cover?
Like most forms of insurance, a title insurance policy helps protect from financial loss. However, title insurance covers the costs associated with past problems or issues with the title of your property, which may not be discovered until some time in the future.
Broadly speaking, there are a variety of title-related issues that could result in expenses that might be covered under a title insurance policy, including:
- Outstanding or ongoing lawsuits
- Forgery or false information on records or documents
- A claim of debt or a lien against the property
- Disputes on the land, easements, or other zoning issues
- Ownership of the property by a party not involved in the sale
- Incorrect or inappropriate information on records
- Probate issues, such as unknown heirs or a will that leaves the property to an unknown party
If any of these is found in the property records, then there is not considered to be a “clean” title. It is important for all parties involved to establish a clean title before the sale of a property; this is one of the most important aspects of the title search, which is typically conducted after the buyer has made an offer to purchase the property.
During the title search, the professional conducting the search on behalf of the title company will look for any problems or issues with the title. The search can take a few days to a few weeks, depending on the complexity of the records and the history of the property. During that time, the title examiner will work to resolve any issues they can.
After this thorough search, the title company will issue a summary of their findings and deliver a formal title letter. Your lender will provide information on making payments towards the lender’s policy, while the costs of the owner’s policy are typically included in the closing costs that sellers will can expect to pay in Chicagoland.
Importantly, title insurance only applies to claims that could become a financial or legal issue during or after the transfer of ownership. It does not cover things that could potentially happen in the future, such as damage to your property from weather or other natural disasters, theft or burglary, or anything else that could happen after the sale of the property.
How Much Does Title Insurance Cost?
Title insurance costs will be estimated by an underwriter at the title company, and are generally based on the amount of the loan and availability of past information about the property. Typically, the cost of a lender’s policy is added by the mortgage lender to the amount of your loan, and paid down along with your other loan payments.
An owner’s policy cost is based on the cost of the property being sold, and may vary based on the risk that the property holds and the location of the property.
An important difference between owner’s title insurance and most other insurance policies is that there is just one, upfront payment you’ll have to make. Unlike your car or medical insurance, a title insurance policy does not require monthly payments.
Why Is Title Insurance Important?
Your home is likely one of the largest purchases and most important investments you will make in your lifetime. You want to make sure that you are protected from any issues in the past that could pose a risk to your investment in the present.
Title insurance gives homeowners a sense of security knowing they will be financially protected. If you do not have a title insurance policy and some issue is discovered with the title or in the records for your property, you may have to spend a lot of time and money fighting for your right to the property — and the costs associated with clearing title and protecting your home purchase may not be covered.
We Make The Homebuying Process Easier
We understand that there are a lot of important decisions you have to make when purchasing a home. That’s why we offer an easier experience with our One-Stop Shop — featuring sales, mortgage, and title services all working together under one roof.
Baird & Warner Title Services is one of the top title companies in Illinois, offering a full-service, integrated approach that helps make sure your real estate transaction is seamless and closes quickly and smoothly, with a network of 1000 local attorneys offering the expertise you need, combined with the best technology available.