If you’ve ever bought a house, you’ve probably wondered if title insurance is really necessary. I mean, sure, it protects you in the event of a dispute over the ownership of your property, but how often does that really happen?
This issue has been brought into sharper focus by recent developments in the ongoing foreclosure crisis. In fact, a number of major lenders have frozen their foreclosure proceedings due to concerns over the validity of their claims.
So… What would happen if a bank foreclosed on a home and ultimately sold it to someone else, only to later have a judge overturn their decision? What if you were the new owner, and the original owner came back to claim their home?
These are the questions that Ron Lieber tackled in his recent NY Times column. The short answer is that you’d be in trouble if you didn’t have title insurance. And such troubles aren’t limited to botched foreclosures.
What if the long-lost heirs of the original owner showed up on your doorstep stating that they never agreed to the sale of the property? Or maybe a contractor field a lien against the original owner, and now wants to make a claim against your house. While title insurance will protect your interest, there are a couple of potential gotchas.
- For starters, you need to be sure that your title insurance policy covers both the lender and you. If you take out a mortgage, you’ll be required to carry a policy to protect the lender, but not necessarily yourself.
- Second, title insurance policies typically only cover the purchase price of the home. Thus, if you buy a home on the cheap and spend a bunch of money fixing it up, you could wind up taking a hefty loss.
Ultimately, title insurance is a necessary evil. And guess what? If you refinance, you’ll need to buy a new policy. The good news is that you should be able to get your new policy for a reduced “re-issue” rate. If the title company doesn’t offer it to you at a reduced rate, ask them to do so.
While I was writing this, a story popped up on the local news talking about the possibility of a national moratorium on foreclosures. This talk is coming on the heels of reports of bank officials signing stacks of foreclosure documents without even reading them.
What do you think? Should lawmakers step in and halt foreclosures until we get things sorted out? Or should they just butt out and let the process run its course?