Are you in the process of building or buying a home? You may find yourself hearing the term “title insurance” over and over again but still don’t fully understand what it means. This article will provide you with a comprehensive overview of this policy, and all of the factors surrounding it so that you can walk away feeling confident that you’re making the right choice when it comes to this type of insurance.
What is Title Insurance?
Title insurance is a policy that protects property owners and lenders from potential title defects and issues that may arise after a real estate closing. It covers third-party claims on a property that don’t appear in the initial title search and occur after a real estate closing. Title insurance is a one-time payment that provides long-term peace of mind for property owners.
In Australia, a title insurance policy typically lasts for as long as you own the property. It is important to conduct thorough due diligence, including pest and building inspections when obtaining title insurance.
Benefits of Title Insurance
Title insurance provides peace of mind for property owners, knowing that they are protected against potential title defects and issues. It can help to prevent costly legal battles and financial losses. Title insurance can also provide a cash settlement to a new owner who unwittingly purchases a property with a forged deed.
You may ask what does title insurance cover? Well, title insurance protects property owners from financial losses, covering various complications such as unpaid debts or fraudulent claims against ownership, as well as underlying issues with a property’s title that might have been missed before you bought the home. It protects against title defects, such as errors in property records, forged deeds, and unknown liens, as well as issues with council approval, zoning laws, and illegal building works.
Types of Title Insurance Policies
The two primary types of title insurance in Australia are owner’s title insurance and lender’s title insurance.
1. Owner’s Title Insurance
Owner’s title insurance is a policy taken out by property purchasers to protect their ownership rights. This type of insurance covers the insured against various risks that could arise after the purchase of a property. Common risks covered include:
- Title defects: Issues that could affect ownership, such as errors in the public record or undisclosed encumbrances.
- Illegal building works: Protection against costs associated with demolishing or altering illegal structures built by previous owners.
- Fraud or forgery: Instances where a third party might fraudulently claim an interest in the property.
- Access issues: Problems with the legal right of access to the property.
This insurance is a one-time purchase and remains valid as long as the insured owns the property.
2. Lender’s Title Insurance
Lender’s title insurance, also known as mortgagee’s title insurance, is a policy that protects lenders against losses resulting from defects in the title to the property that secures a mortgage loan. This type of insurance is often required by lenders when providing a mortgage and covers:
- Invalidity or unenforceability of the mortgage: Protection if the mortgage is deemed invalid or unenforceable.
- Priority of the mortgage: Ensuring that the lender’s mortgage takes priority over other claims or liens on the property.
- Errors in title search: Covering losses due to mistakes made during the title search process.
Unlike owner’s title insurance, lender’s title insurance does not protect the property owner but instead safeguards the lender’s interest until the mortgage is paid off.
In short, Lender’s title insurance is required by lenders to protect their interest in the property. An owner’s title insurance policy, while optional, is highly recommended as it offers essential coverage for homeowners against undiscovered liens and legal claims on the property.
These insurance types provide crucial protection in the complex landscape of property ownership and mortgage lending in Australia.
Title Insurance vs. Warranty of Title
Title insurance is different from a warranty of title, which is a seller’s guarantee that no one else has a claim to the property. Title insurance provides broader coverage and protection against potential title defects and issues. The seller typically provides a warranty of title, while the buyer purchases title insurance. Many homeowners find title insurance worth the investment due to its role as a protective measure against potential financial issues arising from title disputes and legal complications.
Title Insurance and New Builds
While it may seem unnecessary, title insurance is recommended even for new builds, as it safeguards against issues that could arise when building a home. New builds may have complex title histories or previous owners, making title insurance especially important.
Title insurance can provide peace of mind for property owners, knowing that they are protected against potential issues that can result in financial and legal turmoil. Owner’s title insurance is particularly valuable as it lasts for the duration of property ownership, covers costs of undiscovered liens, and safeguards against legal claims on the property.
How Can We Help
At Haitch Conveyancing, we specialise in property law and can provide expert guidance on all matters related to title insurance. Contact us today to ensure your property transactions are handled with expertise and precision.
Frequently Asked Questions
Can I Buy Title Insurance After Closing?
Yes, title insurance can be purchased after closing, but it’s recommended to purchase it at the time of closing. Purchasing title insurance after closing may not provide the same level of protection as purchasing it at the time of closing. The lender’s title insurance is required during the loan process to protect the lender’s interests.
Is Title Insurance a One-Off Payment?
Yes, title insurance is typically a one-off payment made at the time of closing or after closing. The payment is usually a percentage of the property’s purchase price, ranging from 0.5% to 1%. The one-off payment provides long-term peace of mind for property owners, knowing that they are protected against potential title defects and issues.
Do I Need Title Insurance?
Lender’s title insurance is required by lenders to protect their interest in the property. Owner’s title insurance is optional but highly recommended to protect the property owner’s interest. Title insurance is especially important for properties with complex title histories or previous owners.
Where to Buy Title Insurance
Title insurance can be purchased from a title insurance company or a licensed title agent. It’s recommended to shop around and compare prices and policies from different companies. Some title insurance companies offer discounts for simultaneously issuing lender and owner’s title insurance policies. For expert help and guidance on all matters of property law and title insurance policy, contact us.
