Taking out a mortgage loan is far from inexpensive. You’ll have to pay for everything from real estate taxes and homeowners insurance to recording fees and prepaid interest. In all, these closing costs can add up to 3% – 6% of your total loan amount.
Some of the bigger fees you’ll pay when closing a mortgage are related to title insurance, including the insurance itself and a search that your title insurance company runs to make sure no one else has a claim to your property.
You might wonder why title insurance costs so much. The short answer: It’s an important form of insurance. It protects you from any individual or entity that says it has a claim on your home. Without title insurance, any individual or government body filing a claim against your title could take over ownership of your property, forcing you out of your home.
What Is A Title Insurance Claim?
When people, lenders or government entities file a title claim against your property, they are asserting an interest in it. For instance, maybe there's a former mortgage on your home – one that your title company missed during its title search – that your residence's previous owners didn't pay. The lender behind that mortgage can make a title claim requesting that you pay off the remainder of that mortgage.
If you don't, and if you don't have title insurance, that lender could take ownership of your home through the foreclosure process if you don't pay off what your home's former owners owe. If you do have title insurance, you can file a claim with your title insurer and let the title company resolve the issue. Your insurer might pay off the amount you owe or might negotiate with the lender filing the claim so that you can keep your home without having to pay off the debt owed by its former owners.
Property boundary disputes are another common form of title insurance claims. Maybe the former owners of your home put up a fence that you thought was on your property but is actually on land owned by your neighbor. Your neighbor might file a claim requiring that you move the fence back to your own property. You can then file a claim with your title insurance company to help resolve this dispute. Your title insurer, for instance, might pay you to hire a contractor to remove the fence and put up a new one. This way, you won’t have to pay out of your own pocket to settle this issue.
If you receive notice of a title claim in the mail, do not ignore it, even if you don’t recognize the lender, person or entity making the claim. Remember, title insurance claims are made against your property, not you, so you might not recognize the parties involved in a dispute. Ignoring the claim could result in you being forced to pay someone else’s bill or running the risk of losing your property through foreclosure.
What Is Title Insurance?
When you buy a home and take out a mortgage, you'll more than likely also pay for title insurance coverage. This insurance, as its name suggests, protects you in case issues arise with the title of your home.
Maybe your home's previous owners didn't pay their property taxes. The county they owed can file a lien against your home and demand that you pay these unpaid taxes. If you don't, the government body can take possession of your home through the foreclosure process.
Title insurance protects you from this. If you purchased an owner's title insurance policy when closing your loan -- and it’s strongly recommended you do this -- your title insurer will work to resolve any liens filed against your home. Your insurer, for instance, might pay off the unpaid taxes on your home, erasing the lien against it.
There's also a lender's title policy. This title insurance protects your lender, not you, in case title insurance problems arise. You'll be required to purchase one of these policies when you close on your mortgage.
You won't be required to purchase an owner's title insurance policy, but you should. When you close on a mortgage loan, your title insurance company will run a title search with the goal of finding any claims against the home you plan to buy. These searches, though, are not perfect, and liens and other claims can slip through. Your owner's title insurance policy will protect you if this happens.
How Do I Find My Title Insurance Company?
You will receive a copy of your owner's title insurance policy when you close on your mortgage loan. This policy will include contact information that you can use when an individual, lender or government body makes a claim against your home's title.
If you can't find your title insurance company, or you can't remember the name of your title insurer, contact your mortgage lender. Your lender can help you get a new copy of your title insurance policy or get you in touch with someone at your title insurer who can help.
How Do I Notify My Title Insurer Of A Claim Against Title?
If an individual, government or other entity files a title claim against your property, don’t hesitate to contact your title insurer. You can often take care of this by phone. Look for your title insurer’s contact number on your title insurance policy. Again, if you can’t find this policy, contact your lender.
You might also be able to notify your title company through email or by filling out a form on the company’s website. You’ll typically have to provide some basic information – your name, address and policy number – when you reach out to your insurer.
Some title insurance companies might require you to notify them in writing – not by email or phone – if someone files a claim against your property. If you must contact your insurer this way, send your letter through certified mail and request a return receipt. This way, you’ll be notified when your title insurer receives your letter.
How Does A Title Insurance Claim Work?
Once you inform your title insurance company about a claim, your insurer will handle the rest. That’s what you paid for when you took out an owner’s title insurance policy. Remember, you only pay for this title insurance policy once, at your loan’s closing, and the policy remains active until you sell your home.
Depending on the type of claim, your title company will take different paths to resolve the issue. Usually, though, your title insurer will negotiate a solution with the person or entity making a claim. If a former owner of your home, for instance, never paid off a mortgage, your title insurer might pay off the remaining debt itself to make sure you don’t lose your home in foreclosure.
How Do Claims Against Title Arise?
There are different types of title claims. Here’s a look at some of the more common ones you might face.
One of the more common types of title claims is a mortgage lien. Previous owners might not have paid their property taxes, mortgage loan or HOA fees. Easements might result in title claims, too. If your property has an easement on it, this means that while you own the land and your home, another entity has the right to access your property. For instance, your local utility provider might be allowed to enter your property to access an electrical pole. Your neighbor might be allowed to access your driveway to get to his or her property. If your title company missed any easements filed on your property during its title search, you might be surprised that someone else, or a public utility, has the right to access your property.
Title theft and title fraud can also result in a claim against your title. Title theft is a serious problem: This happens when a criminal uses your personal information – such as your Social Security number – to steal your identity. This thief then creates a fake title deed, making it appear that he or she owns your home.
Once thieves have created their fake titles, they can apply for a cash-out refinance on your home. They'll then take the cash from that refinance and disappear. Other times, they'll take out a home equity line of credit – better known as a HELOC – in your name. They'll use the equity from your home to run up big purchases without making any of the payments on this HELOC.
In both cases, you might face foreclosure when these loans go unpaid. Fortunately, title insurance will protect you in case of title fraud.
Title Search Negligence
When you take out your mortgage loan, your title insurance company will run a title search – that you pay for – to hunt for any claims or liens against the home you are buying. This search is supposed to protect you from future title claims.
Sometimes, though, title insurance companies might miss a claim or lien during their searches. Again, your owner’s title insurance policy should protect you from any future claims arising from sloppy title searches. You might want to consult with a real estate attorney to make sure that you don’t have to pay any fees or lose your home because of a mistake made by your title insurance company.
What If I Don’t Have Title Insurance?
You might not be excited about paying for title insurance when closing your loan. After all, you’re already paying thousands of dollars at the closing table. But not having title insurance can be costly.
If an entity or person makes a title claim against your property, you’ll have to defend it at your own cost. Working with a real estate attorney to fend off a title claim can cost thousands of dollars. If there are unpaid taxes or mortgage payments in your home’s past? Without title insurance, you might have to pay those debts. You might even lose your home without the help of a title insurance policy.
Always check your closing documents and speak with a real estate attorney if you are facing a title claim and you didn’t pay for title insurance at closing. You might have other protections. The sellers of your property might have named you as beneficiaries on a title policy that they paid for when purchase their home. This isn’t a frequent occurrence, but it does happen. And this title policy would then protect you from claims.
If you didn’t pay for your own title policy and no one named you as a beneficiary on existing title insurance, check whether you and your home’s sellers signed a general warranty deed. These deeds state that a home's sellers hold clear title to the property and that there are no outstanding liens or unpaid mortgages on the home. A general warranty deed, then, could protect you against any claims made on your property.
If you don’t have title insurance or a general warranty deed, contact the attorney who handled your mortgage closing immediately. This legal professional can guide you through the next steps in protecting your home’s title.
How Will My Title Insurance Claim Be Resolved?
Every title claim is different. But when you have title insurance, your title insurer will work to resolve the problem without you losing your home or paying out of your own pocket to cover unpaid taxes or debts.
Say the previous owners of your home didn’t pay their property taxes for three years. Your tile company will usually pay these taxes so you don’t have to cover the debt on your own. If an individual claims that he or she has an ownership interest in your home, the title company will attempt to negotiate a settlement where you keep your home and are protected from any financial loss from the claim.
Remember, though, that title insurance only protects you from title claims related to title problems in the past, before you took out your title insurance policy. If you stop paying your taxes or your mortgage payments, title insurance won’t help you. You’ll have to pay up if you don’t want to lose your home in foreclosure.
You’ll Be Glad You Have Title Insurance If A Claim Against Title Is Made
Title insurance isn’t cheap. But it is a worthwhile investment. While title claims are relatively rare, they do happen. And if a government body or individual files a claim against your property, you’ll be glad that you invested in an owner’s title policy. If you want to learn more about title insurance and the basics of owning a home, speak with a Home Loan Expert.