If you’ve never built a custom home before, it may surprise you how complex the process can be. The good news is, you don’t have to manage it all alone. Great contractors like the team at New Frontiers can help you through. Complexity is especially nerve-wracking when it comes to title insurance, and we want to do our part to ensure you know enough to proceed confidently. That is why we are taking some time to discuss title insurance!
What is title insurance?
We’ll start with the technical definition, which is as follows: “Title insurance is a contract of indemnity that guarantees the condition of real property.” To put it more simply, a title insurance policy on a home guarantees that the property in question has no liens against it and has a clear title. When you’re looking to invest in a home, a title company does a search to determine if there are any liens against the property. If there aren’t any liens against your chosen property, the company will put together a “title commitment” with all the requirements that must be met before closing. After that, the title policy gets issued.
The importance of due diligence
The research a title company does on properties is important because sometimes, properties have pre-existing liens on them. How do liens happen? When a homeowner lives in a neighborhood with a homeowner’s association (HOA) and fails to pay dues, the HOA can put an assessment lien on the property. When it comes to new construction, if builders don’t get paid for their work, they can put a materialman’s lien or mechanic’s lien on the property. Liens have to be satisfied before the policy gets issued.
When a title company needs to satisfy a lien, they have to make sure they find the correct owner responsible for the lien. Having insurance is key, because let’s say that an owner failed to pay correctly years ago, and five different owners have had the property since then. If you’re ready to invest in this home, you don’t want to get stuck having to satisfy part of a lien for which you aren’t even responsible. The insurance is there to protect you.
Who pays for a title policy and who owns it?
When you use a lender to buy real estate, two policies are simultaneously issued. One is a lender’s policy and one is a buyer’s policy.
- The lender’s policy: This policy is paid for by the buyer, because the buyer is “hiring” the lender. It is also called the Mortgage Title Policy (MTP).
- Buyer’s policy: A seller usually pays for the buyer’s policy. The only situation in which this changes is when the sales contract stipulates the buyer has to pay for it. This can be a condition of sale.
At New Frontier Homes, we are passionate about building and improving homes. There is nothing we like better than making home dreams come true. Contact our elite home building team in Watkins today!