How Misunderstanding Title Insurance Financing Can Incur Unexpected Costs

Title InsuranceDid you know that people who purchase homes in the state of New York spent an estimated $817 million in 2015, just on title insurance? That sounds insane, doesn’t it?

Throughout the process of purchasing any piece of property, real estate professionals are going to have to talk to their clients about title insurance—something that is riddled with misunderstandings and complete hearsay.

Many times, these discussions are quick and the finer points are glossed over, like the cost that is generally associated with title insurance. In fact, many believe that the cost of title insurance is a fixed rate, but since this particular item is the largest part of closing costs, it actually represents an area where both lenders and attorneys can provide their clients extra value. How? They can do this by teaching them about title insurance and how they can save money. When these discussions are done correctly, the professional relationship a client has with their real estate team will be founded on more trust and it could lead to more referrals in the future.

You may be wondering what title insurance is and why it is important. Well, to put it simply, title insurance is something you’ll need to protect you, the buyer, and the lender from a defective title. This means that you won’t be held responsible for any liens, judgments, or other legal issues that could get in the way of you becoming a home owner. Title insurance is necessary in almost all real estate transactions and it is usually always purchased even when it isn’t a requirement.

This kind of insurance is unlike other forms of insurance, as you will only have to pay the premium once, either when you buy the property or when you get the loan. The title insurance protects you from future losses that could arise from situations that happened before you even bought the policy. Granted, there are other forms of insurance that will protect you for things that could happen after the policy has been purchased—these will require annual premium payments and they could be subjected to cancellation or not be renewed.

Since the title insurance protects you against situations that could happen before the policy has been issued, the process of underwriting the policy requires a lot of research into the property’s past, which includes looking for possible liens and judgments against the property. The goal is to find any complications that could prevent you from becoming the owner and let you know before you sign on the dotted line. There are other forms of insurance that relies on statistical analysis which is combined with other information that can help predict the potential of a future loss.

Because there are two large components of title insurance (premiums and other title-related costs), they can be pretty expensive. However, when you are knowledgeable about title insurance, you, the lender, or your attorney can greatly reduce the cost of both these things.

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