Title insurance isn’t usually one of the first things that most people buying a piece of property think about. After all, whether the property is residential or commercial, it seems like confirming that the person selling it to you has the right to do so shouldn’t be too hard. Right? Think again.
In an ideal situation, that’s the case, but you may be surprised at how few transactions go exactly as they should. That’s why West & Woodall Real Estate and Pickett Sprouse Commercial Real Estate owners Bert Woodall and Kirk West joined forces with Magnolia Title Company to form Live Oak Title. The goal of the new company is to provide yet another way of helping to make sure that the process of purchasing a property goes as smoothly as possible. In this post, we’re looking at what title insurance is, why it’s so important, and whether it’s required.
What is Title Insurance?
As you probably already know, a title is legal ownership of a property granted through a physical document called a deed. It proves who the legal owner of a property is and gives them the right to use or sell it. If you’re purchasing a property, the closing attorney completes a title search to make sure that no one else can claim ownership other than the person or entity that is selling it to you. Bert Woodall explains that “A clear title means that no other owner is going to pop up in three years after you’ve made the purchase and say, ‘This is my property.’ “
While that is the intent of doing a title search, issues can and do still come up, which is where title insurance comes in. It is part of the closing costs for any real estate purchase and protects both lenders and buyers from any financial loss they may suffer because of title issues. The North Carolina Department of Insurance (DOI) says that it also pays legal costs if the title insurance company is required to defend your title against covered claims as well as pays successful claims against your title, “up to the face amount of your policy.”
According to Laura Martin, Owner and Counsel for Magnolia Title Company, issues can come up involving unrecorded leases, marital interest not set or disclosed, missing heirs from an estate, and for many other reasons. She points out that title insurance works backward in time from the date the attorney certifies the search to whenever the beginning of the search period is. This is usually a full search of the previous 30 years or the attorney will tack on to the prior policy.
What is Live Oak Title?
Because title insurance is such an important behind-the-scenes aspect of buying any type of property, Bert and Kirk wanted to make another resource available that would ultimately benefit West & Woodall and Pickett Sprouse clients as well as anyone else in need of a title insurance provider. Live Oak Title is a joint venture with Magnolia Title Company. In short, it gives our agents and brokers more direct access to a title insurance company and a title specialist attorney. This, in turn, allows them to help address any issues that may come up with a transaction more quickly and efficiently and with better information at their fingertips in addition to being more proactive in preventing problems before they happen.
Types of Title Insurance
There are two types of title insurance. One is for owners and the other is for the lender or mortgagee. According to the DOI, lenders' title insurance “protects the lender’s investment by paying the mortgage if a title defect voids the owner's/buyer's title.” Owner's insurance describes the property and “any limitations that you have accepted in buying the house.” Anything outside of these limitations having to do with the title should be covered. The DOI cautions that “the buyer should insure for the full purchase price of the property; whereas the lender needs a policy only for the amount of the loan.” Both types are different than most other insurance policies because they provide protection from problems that happened before the buyer takes over the title.
Is Title Insurance Required?
Laura says that lenders’ title insurance is required in North Carolina if a mortgage is involved in the purchase of the property. She adds that most attorneys are hesitant to close a deal without it, even if the buyers are paying with cash.
“If the buyer is adamant that they do not want title insurance, if it’s a cash purchase, the closing attorney will make them sign a waiver so if something comes up the buyer understands they will be left to defend a title claim on their own.”
While the owner’s policy is not required in North Carolina, Laura questions why anyone wouldn’t get it because our state issues the owner’s policy at the same time as the lenders’ policy for a cost of $26. So, it’s basically “buy one, get one free.”
How to Buy Title Insurance
Title insurance must be purchased by the new owner every time a piece of property changes hands. According to the DOI, “The owner’s policy remains in effect as long as you or your heirs own the property or when you are liable for any title warranties made when you sell the property.” You cannot transfer a policy from owner to owner, and the prior owner’s policy will not protect you.
As a buyer, there really isn’t anything extra that you have to do to purchase title insurance. The closing attorney chooses which title insurance company to use, they handle all the details, and you pay for the policy as part of the closing costs. Laura emphasizes that title insurance isn’t like any other policy where you’re paying deductibles and a monthly premium. It’s a one-time charge on your home at closing.
Bert adds that while a buyer can request that the closing attorney use a specific title insurance company, it’s up to the attorney to ultimately determine which one is used.
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