In this article, you will discover:
- The protections you can receive with title insurance.
- When title insurance pays out – and when it usually does not.
- Information about premium title insurance rates in Florida.
Who Or What Does Title Insurance Protect?
There are two general types of title insurances: the owner’s policy and the lender’s policy. The owner’s policy protects the individual who owns the property, and the lender’s policy protects the lender if there is a mortgage on the home.
Title insurance guarantees that the person selling the property has the authority to do so. It also checks that there are no liens, judgments, encumbrances, or anything else that would prevent the new owner from owning the property free and clear. Title insurance ensures the new owner has a clear title up until the date of the transfer from the seller to the new buyer.
The chain of title clearly states who owns the property and that you are receiving what you paid for it. If there is a mortgage involved, the lender will always require title insurance. They will only let you borrow money to purchase a property if they can be sure there is a valid mortgage.
You cannot lien a property that you do not own. If the sellers do not actually own it, and then you think you own it, the mortgage will be invalid and have no effect. With the lender’s policy title insurance, if that were to happen, whoever issued your title insurance policy would have to pay the bank back the full value of that mortgage.
For example, if you take out a $100,000 loan to buy a home, but the seller does not have the authority to convey the title to you, the title insurance company will have to write a check for $100,000 back to the bank. As the buyer, you would have a claim from the title insurance company.
If you had any out-of-pocket costs, you would be reimbursed up to the value of the policy. At every real estate closing, whatever the value of the lien is on the property, the title insurance company will issue twice that amount in insurance protection.
When Does Title Insurance Protect Or Pay Out?
Coverage occurs whenever there is any defect in the title. That could include any lack of ownership interest from the seller to the buyer, or any liens, judgments, or encumbrances that should have been uncovered. These would be covered in the title insurance payout.
A standard example is when the legal description of a property was incorrect, such as defects in the transfer from the seller to the buyer. Upon discovery, the title policy would cover the cost of fixing these issues.
An attorney may advise you to file a mortgage modification or deed modification, and a title insurance policy would cover these types of lawsuits. If there were a missed past mortgage payment, the title insurance company or the title insurance policy would have to pay that off.
An issue that commonly arises is a revolving line of credit or a home equity line of credit (HELOC) that you could draw from on a property at a title closing. Sometimes you can receive a payout for this.
At the closing, the title company will pay off what is owed on the revolving line of credit but wait to fill out the additional paperwork to close that line of credit. However, if a new buyer buys the property, the seller may then realize they still have an open line of credit against a property that they no longer own. At that point, they may start running up a tab on the credit line.
The worst case scenario would be if the same property is sold three more times without the use of a title insurance company or a title lawyer. Finally, the third person may realize there is a $150,000 open credit line when they try to sell the property with a real title insurance company.
This creates a huge mess and a giant problem, and is a perfect example of when title insurance would be necessary and useful. Without it, you would be stuck owing $150,000 on a house that you thought you owned but do not actually own.
When Would Title Insurance Probably Not Pay Out On A Claim?
There is usually payout on incidents not covered by your policy or a covered claim under your policy. If it’s an unrecorded lien or an unrecorded judgment, these are not valid and would not be covered.
Another common situation occurs when someone is buying a policy without a lender and skips surveys. There is a survey exception on all policies that states that, if you did not complete a survey, anything that you would have found by using a survey is not covered.
Often, buildings encroaching on right-of-ways are over property lines, which are easily discovered with a survey. If you forgo a survey and then you find out that your house is 10 feet into your neighbor’s yard, that would not be covered.
Is Title Insurance Mandatory In Florida?
When using a lender, title insurance is mandatory. A lender will require a title insurance policy to guarantee their money. With a cash deal, it is not mandatory. However, it is always advisable to get title insurance so you do not end up in a bad situation, such as inheriting a lien that you didn’t know about.
What Items Are Included In The Title Insurance Premium Rate In Florida?
The Florida legislature sets the premium rate for title insurance, which is one-half of one percent of the closing costs. For example, it would be $575 for the first $100,000, and $500 thereafter for every hundred thousand dollars. A $200,000 loan would cost $1075 for the title insurance premium.