Buying a home is an exciting time, but there are important things you will need to know about like title insurance, for example. Understandably, many homebuyers don’t fully understand what it is and why they might need it. We explain title insurance, the types available, and why it shouldn’t be overlooked.
What is title insurance?
Typically, when you buy a house in the UK, the solicitor does a lot of checks to make sure everything is okay with the property’s legal documents. These checks help ensure there are no legal issues that could cause problems later.
Sometimes, though, there might be complicated issues with the property’s history or paperwork that aren’t easy to fix right away.
In these cases, title insurance can be used as an extra layer of protection.
Title insurance is a form of indemnity insurance, and it can help cover any financial losses if something goes wrong related to the property’s legal title after you have bought it.
Types of insurance
There are two common types of title insurance: an owner’s policy, and a lender’s policy.
The owner’s policy is usually based on the home’s purchase price. It lasts as long as you or your heirs have an interest in the property.
The lender’s policy is a form of title insurance that is required by the lender. It only protects the lender’s interests in the property up to the amount of the loan. So, it covers the lender if the property or collateral is lost to a title claim. This policy remains in effect until the loan is paid off or refinanced.
What covers a basic owners title insurance
A basic owner’s policy usually protects against:
- Ownership conflicts: It will cover situations where someone else claims ownership of your property.
- Document issues: Protection is provided in cases of incorrect signatures, as well as forgery and fraud related to the property documents.
- Recording errors: This includes errors in public records that could affect the title.
- Restrictive covenants: For instance, a restrictive covenant might prohibit the owner of a property from using it for commercial purposes, or it might require the owner to maintain the property in a specific way.
- Legal claims: This includes any claim or verdicts against the property, such as unresolved lawsuits or outstanding liens. A lien is when someone legally holds onto another person’s property as security until a debt owed by the property’s owner is paid off.
Title insurance initially ensures that you and your lender if you do have a mortgage, won’t suffer any financial losses from these problems if they do occur.
Title insurance for older houses
When you buy an older house, it’s likely had many previous owners. This can lead to issues:
- There might be unresolved issues like a previous owner’s unpaid debts or legal troubles that could affect your ownership.
- Old debts or legal rights given to others (like a neighbour’s right to use part of your property) might not be clearly recorded but could still impact you.
- The exact borders of older properties can be unclear or incorrectly documented, which could lead to disputes with neighbours.
Title insurance for new builds
- New homes can seem like a clean slate, but they can come with their own set of risks:
- Mistakes can happen when the land your new home is on is divided and recorded for legal purposes. These errors could cause problems further down the line when you come to sell.
- New homes must follow current local laws regarding how they’re built. If your home doesn’t comply, you might have to pay for costly fixes.
The bottom line
Whether you’re buying an old home with a long history or a brand-new one right off the developer’s plans, title insurance can be a smart choice. It helps protect your investment from various legal troubles and financial risks. Covering issues that you might not even be aware of when you make the purchase. This makes title insurance a key part of ensuring your home ownership is secure and free from unexpected legal hassles.
While it can seem like just another step in the lengthy process of purchasing a home, understanding its importance can save you from potential headaches down the road.
Last Updated: May 24th, 2024
