Heading into the closing of a real estate transaction, buyers and sellers are often anxious about the amount of closing costs they will have to pay. For buyers, this includes homeowner’s insurance, appraisal fees, and property taxes. So, throwing in the cost of title insurance too can make you question whether or not it is really needed. Besides - who pays for it anyway?
What Is Title Insurance?
Title insurance is a means of protection against any issues with a title that may have been missed during the title search or appear after the closing. These issues may include:
Judgments
Liens
Outstanding taxes
Forged transfers
Erroneously recorded documents
Easements
And that is just to name a few.
Unlike other types of insurance where you are paying to protect against a future event, title insurance protects against things that have already happened. So if any of these things arise after the property changes hands - you are now responsible for handling it. This could be costly in both time and money - and may even land you fighting a long legal battle.
Of course, if you chose to invest in title insurance, you’d simply file a claim and let the insurance company handle the rest.
Types of Title Insurance
There are two main types of title insurance - an owner’s policy and a lender’s policy. And each one only protects the person it is intended to protect.
An owner’s title insurance policy is put in place to protect the owner. This type of title insurance is not required, but it is highly recommended as it is intended to safeguard investment and ownership rights, too.
A lender’s title insurance policy is often required by the lender and a condition of closing. They are taking a risk by giving you a loan and want to ensure that they are protected until the loan is paid off. This policy will be in the amount of the loan and, once it is satisfied, the title policy will disappear, too.
Remember - an owner’s policy only protects the owner's rights whereas a lender’s policy only protects the lender.
Who Pays for Title Insurance?
When it comes to paying for title insurance, the one responsible can vary from state to state. In the state of Michigan, it is customary for the owner’s title insurance premium to be paid by the seller and be included as part of the closing costs. However, the lender’s title insurance premium is to be paid by the buyer. This, too, is included in their closing costs.
Keep in mind that this is not a recurrent cost. Unlike other types of insurance, such as health or car insurance, it is important to note that title insurance premiums only get paid one time at the closing. From that one payment, an owner’s policy will protect you as long as you (or your heirs) have an interest in the property and a lender’s policy will protect the lender until the loan is satisfied.
Title Insurance at Blue Pointe Title Insurance
At Blue Pointe Title Insurance, we strive to be there for our clients every step along the way. If you require a title search and title insurance or you have questions about the process, contact us today at 517-258-1511.
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