Real Estate Corner

Why Do I Need Title Insurance?

One of the most common questions buyers ask during the process of buying a home is “What is title insurance and why do I need it?” Title insurance (also known as an owner’s’ title policy) is issued by a title company and protects you against claims against your property and events that have happened in the past. The underwriter of the title company in addition will defend you in court if there is a claim on your title. 

What Types of Policies are Available to a Homeowner?

There are two types of title insurance available to a homeowner:

•  Owner’s Title Insurance Policy; and
•  Mortgagee’s Title Insurance Policy. If you finance your home through a lending institution your lender most likely will require a protection of their investment against loss by requiring a mortgagee title insurance policy. This protection will aide in their defense shall a claim be filed that could cause loss of title or expenses incurred while defending an attack on your property.

As a homeowner, with an owner’s title insurance policy, you would have the same protection as your lender and be protected against lost of defect in title.

It is important to note that a mortgagee’s title policy is protection for the lender only so long as there is an outstanding balance on your mortgage and covers only the amount of the remaining balance of the loan.

I Had a Title Search, Why Do I Need Title Insurance?

After your offer on a home has been accepted, the offer is sent to a title company and a title search is ordered. This title search will disclose to all parties involved in the real estate transaction all liens, defects, burdens, and obligations that are of public record. These events are issued in a title commitment and will include conditions that must be met in order for you to take clear title of the home.

Even though you had a title search or the previous owner had a title search in the past, hidden defects could still be found in the title. The title commitment will only provide you information of public record and will not protect you against matters or defects of the past as a title policy would. A title commitment is a preliminary commitment to purchase a lender or owner’s tile policy.

What Will My Title Insurance Policy Cover?

There are many hidden defects of the past that could possibly cause you to defend your property in a lawsuit or lose title to your property. The following are some examples:

• Forged deeds, releases, wills or other legal documents;
• Failure of spouses to join in conveyances;
• Undisclosed or missing heirs;
• Deeds from minors, aliens or persons of unsound mind;
• Errors in indexing of public record;
• Liens for unpaid taxes;
• Mistakes in recording legal documents;
• Deeds from defunct corporations; and
• Unprobated wills.

Your title company’s underwriter will defend you in a lawsuit against your title and will either correct the problem or will pay your loss up to the face value of amount of your policy.  Your policy also will protect you after you sell your property, for defects occurring prior to your ownership that cause a loss to a purchaser if the title was warranted to you.

How Much Do These Policies Cost?

The owner’s title insurance policy is a one-time paid insurance policy that provides protection to you and your heirs for as long as you own the property. In the State of New Mexico, the title insurance rates /policies/endorsements are regulated by the Office of the Superintendent of Insurance. 

You may increase your policy as the value of your home increases for a minimal fee. The cost of your policy is based on the purchase price of the property. Your policy amount must be equal to the purchase price. Your title company will consult with you prior to closing on your home in regards to the cost of this policy for you.

The mortgagee’s policy is a premium paid based on the amount of your loan. In the State of New Mexico, if you chose to purchase the owner’s policy and a mortgagee’s policy at the same time, you pay the promogated rate for the owner’s policy and get the mortgagee policy for $30. You also may be entitled to a discount on your owner’s policy if the seller purchased an owner’s policy.

For further information regarding an owner’s title policy, consult the expertise of the staff at your local title company.

The information in this column is provided by Carrie Montoya-Pegg, Associate Broker at Zia Realty Group and from Title Guaranty, LLC. Montoya-Pegg provides Real Estate Services in Los Alamos, Jemez Springs, Pojoaque and Rio Arriba County.

Direct questions regarding this column to Montoya-Pegg at 505.500.1234 or carrie@ziarealtygroup.com or Title Guaranty at 505.662.5586 or tg@titleguarantynm.com.