Imagine this: You’ve just purchased your home, and have the keys in your hand. But months later, you receive an unexpected notice of lien or judgment against the property you knew nothing about. This is the type of nightmare scenario that no homeowner would want to experience. How can you protect yourself against such hidden threats to property ownership? The answer is Title Insurance.
Whether it be your first time buying a home or you’re an investor buying your 10th property, it is essential to understand how title insurance works and how that title insurance can protect you from issues such as liens and judgments. Therefore, let us dig deeper into the world of liens, judgments, and how title insurance can save you a future migraine.
What Is a Lien?
Before discussing title insurance, however, one needs to know what liens are. A lien refers to a right or legal claim against a property taken to ensure the payment of a debt. In simpler terms, if the previous owner of a house did not pay off debts such as property taxes, contractor bills, or even child support, a lien could be placed on the property, and that debt can become your problem once you purchase the house.
There are different kinds of liens, among which are the following:
Tax liens- Levied to collect unpaid taxes.
Mechanics liens- Titled by contractors or suppliers who were not paid for their work.
Judgment liens- Based on a court decision due to unpaid debts. These liens can have a negative impact on your rights of ownership, and in extreme cases, could end up with the forced sale of your property.
Role of Title Insurance
We now know what liens are. Let’s see the role of title insurance in this scenario. Title insurance is meant to protect both the buyer and the lender against all issues that may arise concerning ownership of the property. That includes protection against any existing liens, claims, or judgments.
Actually, in the process of house buying, a professional title company like Sankalp Title will dig deep to find any lien you might have, disclosed or undisclosed, and judgments. Title insurance protects against unpaid liens as well as judgments and sometimes even pays for loss of property in case of missed lien or an after-buying lien.
Reviewing Liens During Title Search
One of the most important purposes of a title search is to check if the property has liens and judgments. Essentially, it covers checks in public records that can ascertain that the seller legally owns the property and is eligible to sell it free from some concealed debts and obligations.
A good title company will pay close attention to that history and look for anything outstanding that would transfer to a new owner. If any liens come up in that search result, they have to be satisfied before the sale can happen. But sometimes even with the best searches, things slip through the cracks, and that is where title insurance coverage kicks in.
Types of Title Insurance Coverage
When purchasing title insurance, you’ll encounter two primary types of coverage:
- Owner’s title insurance: This protects you, the homeowner, against any claims or liens that may arise after the purchase, ensuring you have full ownership rights.
- Lender’s title insurance: This protects the lender, often required when taking out a mortgage, covering them in case the property’s title is deemed invalid due to a lien or judgment.
Both types of insurance are crucial, but as a homeowner, having an owner’s title insurance policy is your best bet to safeguard your investment against unforeseen issues.
Protection Against Post-Purchase Liens
Imagine buying a home and later discovering a post-purchase lien—a previously unknown debt attached to your property. Without title insurance, you could be forced to pay off someone else’s debt, potentially costing you thousands of dollars. Worse yet, you could lose your home.
Luckily, title insurance policies are designed to protect against such post-purchase surprises. If a lien is discovered after you’ve closed on your home, your title insurance company will handle the legal battle on your behalf, covering the costs of litigation, settling the debt, or reimbursing you if necessary.
Limitations and Exclusions of Title Insurance
While title insurance coverage offers extensive protection, it’s important to understand that it has some limitations. Not every possible lien or claim is covered. For example, title insurance typically does not cover issues that arise from actions you take after purchasing the home, such as taking out new loans or failing to pay property taxes.
Additionally, some exclusions apply, such as:
- Governmental restrictions (like zoning laws)
- Environmental hazards
- Easements or rights of way not previously recorded
It’s essential to thoroughly review your policy to know what is and isn’t covered and discuss any concerns with your professional title company.
Safeguarding Against Unknown Liens
While title insurance offers substantial protection, there are additional steps you can take to safeguard against unknown liens. First, always work with a reputable and experienced title company. A professional title company, like Sankalp Title, uses a meticulous approach to title searches, increasing the likelihood of uncovering any potential problems before you sign on the dotted line.
Additionally, staying involved during the title search process and asking questions can help ensure you understand any issues that might arise. Don’t hesitate to ask your title company to explain anything you find unclear, especially when it comes to the property’s history and any liens that show up.
Importance for Lenders
Lenders also require protection, which is why lender’s title insurance is typically mandatory in real estate transactions involving a mortgage. From the lender’s perspective, they’re taking a significant risk by financing the purchase. If a lien or judgment suddenly surfaces, it could jeopardize their ability to recover the loan amount.
By having a lender’s title insurance policy in place, the lender ensures that their financial interest in the property is protected, reducing their risk and allowing the sale to move forward more smoothly.
Conclusion
When it comes to purchasing a home, ensuring your property is free of any liens or judgments is crucial to protecting your investment. Title insurance plays a critical role in providing that peace of mind, shielding you from hidden issues that could otherwise wreak havoc on your homeownership journey.
At Sankalp Title, we understand that buying a home can be overwhelming, and the last thing you want to deal with is legal challenges like liens. That’s why we take a proactive, detail-oriented approach to every title search, helping you avoid future complications. With our expert team by your side, you can focus on enjoying your new home while we take care of protecting your ownership rights.