When you buy a house, the seller should have complete ownership of the home and as such has the power to turn the residence over to you. However, some home buyers discover either during the sale or after the purchase that another person or business possesses some kind of claim on the home.
You want to discover any unresolved ownership issues as well as other problems with a home title before you complete the closing. This is where title insurance comes in. U.S. News and World Report explains how title insurance works and why home buyers may benefit from it.
The basics of title insurance
If someone has put a claim on a property like a mechanic’s lien due to an unpaid contracting bill, you could end up on the hook to pay off the lien if you have already bought the home. The purpose of title insurance is to protect you from financial losses from undiscovered ownership claims. Title insurance can also protect you from legal fees that you would otherwise have to pay in order to deal with a claim.
Researching a home title
Upon buying title insurance, you can also purchase a title search on the home you wish to buy. The title insurance company will check the public record for any outstanding claims on the house. Before you finalize your purchase, you may learn that a relative of the seller has advanced a claim on the home, among other possible issues.
At this stage, you have an opportunity to clear up title defects before you become personally responsible for settling them. If your title insurance company finds a lien, you can speak with the seller about paying it off. If there is an outstanding claim put forward with a deed, your legal representation has a chance to determine the authenticity of the document. By the end of the process, you should have peace of mind that your new home is yours without contest.