You’ve just received an acceptance on an offer you placed on a new home, and you could not be more excited. You’re now entering the next phase of the homebuying process - inspections, appraisals, and review of a title search before you go to closing.
While inspections confirm your new home is safe and up to code, and an appraisal ensures the value of the home, a title search confirms you have the legal right to purchase and claim ownership of the home. However, just like you have insurance to protect against any harm that may befall the house physically, you need an owner’s title insurance policy to protect you in case a 3rd party asserts a legal claim against the rights to the land or property.
Although you will be required to purchase a lender’s title insurance policy, this only protects the lender and their investment (assuming you work with a mortgage lender). What about your investment, however? A buyer’s title insurance policy in Maryland is critical, so you don’t lose either the home or your financial investments if a 3rd party claims an interest against the property.
It’s important to ensure you don’t mistake a lender’s title insurance policy for a buyer’s title insurance property. While you are required to purchase a lender’s title insurance policy when working with a mortgage lender, and you must be offered the option for buyer’s title insurance, the two do not offer the same coverage or protection.
Understanding the importance of a buyer’s title insurance and when and how it functions is not always straightforward. After all, a title search is completed before closing to ensure that the sale is legitimate and there are no roadblocks standing in the buyer’s way.
These title searches can’t predict forgery, undocumented issues, or human errors in sales that may have occurred years previously, however. The purpose of your buyer’s title insurance is to protect you financially if another claim is brought against the home, even years later. While the lender’s policy you’ll be required to purchase protects the lender and any fees they may face, you may face personal losses if a claim arises.
One example that a title search can’t always account for is an heir making a claim to the home, or even just the land. Distant relatives may arise years later, with documents stating they own the land or even the house. In either scenario, you may be facing a loss of your financial investment or your claim to continue to live on the property. While the heir may have the rights to the home, your buyer’s title policy will protect your financial investments.
Although not intentionally malicious or criminal, it is not unusual for a person to forge their spouse’s signature on legal documents. This may include signing over the title of the home, and this can have repercussions later for the new homeowner.
A seller may pose as single, while they may be either married or in the middle of a divorce where their spouse still has a claim to the property. Once the spouse discovers the home was sold without their permission, they can come after the home, claiming legal rights to it and may demand it back. This puts you at not only a financial risk, but losing the home as well. While some determinations may claim the spouse has the right to the home back, your buyer’s title property will help you recover financially.
Just as an estranged spouse may not be informed of a home’s sale, a co-owner may not be informed, either. People will often buy homes with friends or family members. As the decades move on, a co-owner may move out and leave the home to the responsibility of the other owner. However, if the ownership is not legally transferred from the co-owner to a sole-owner, they still have a claim to the property, even decades later.
The second owner may later decide they never wanted the property sold and want their land back, or they may make claim to financial allowances they are owed. Other circumstances may come into play, where a co-owner may have heirs who claim to have rights to the property.
A buyer’s title insurance policy can seem unnecessary in the case of a new home — who could claim ownership on a new property? Heirs, co-owners, and spouses are not the only ones who may make a claim against a property, however. Partial claims can arise that don’t seek ownership of the home but seek financial dues that are the responsibility of the owner.
On a new property, this may be that contractor, or mechanical, fees were left unresolved. If the contractors were not properly paid for the construction of the new home, they will pursue the homeowner for any fees left unpaid, which may be thousands of dollars depending on the work. Buyer’s title insurance protects you from needing to pay the contractors yourself.
Liens against a home or property can apply to both new homes and older homes. A lien is a legal claim that any funds from the sale of the home must be directed to pay off debts. This can include property taxes, child support, and other issues.
A new home may be free of any previous owners claiming rights to the home, but if the property taxes were left unpaid on the land, you, as the new owner, may be responsible for resolving those debts. A buyer’s title insurance policy protects you against those claims.
For a home, a lien may have been placed for unpaid child support – if the home sells without the previous owner resolving those liens, you will have to provide a buyer’s title insurance policy to protect yourself from being held responsible.
Even if you feel confident in the title search that was done before closing, you nor your lender can ever predict when a simple human error will be the cause of a claim being brought against your home.
One circumstance where a buyer’s title insurance policy will benefit you is when facing an heir from a complication with a will. Whether this applies to the home or the land, complications with wills can arise at any moment. It may be that the seller thought the home was theirs to sell in good faith, when in fact the wrong will was referenced and the property was to be inherited by another person.
The rightful owner can make a claim against the house, putting your investment at risk. While not malicious and a simple error in dates and references, you don’t want to have to face such a situation without protection and backup on your side that a buyer’s title policy provides.
Another human error where you’ll want buyer’s title insurance is in the case of a simple human error within courthouse records, like with a misspelled name. A misspelled name can lead to people chasing down the wrong leads to ensure the property has the right to be sold by the current seller. If it’s discovered a middle initial was left off or a common last name had a small typo, it can cause the rightful heirs to protest the selling of the home and claim it for themselves.
Always protect against issues that may arise even years later. Not all title problems occur during the title search or in the first few years – discoveries like a misspelled name can occur at any time, without warning. A decade into your home loan, don’t be wishing you had paid for buyer’s title insurance ten years earlier.
DISCLAIMER: THE INFORMATION CONTAINED HEREIN IS for informational purposes ONLY and shall not replace the actual terms of any title insurance policy issued AND/OR PROCURED BY CAMPUS TITLE COMPANY, LLC (“CAMPUS TITLE”) . Campus Title makes no representation and/or warranties in connection with the information CONTAINED herein. FURTHER, THE ACTUAL TERMS AND CONDITIONS CONTAINED IN ANY Title insurance policy ISSUED AND/OR PROCURED BY CAMPUS TITLE shall control in the event that any claim ARISES OR IS ASSERTED BY ANY INSURED AGAINST CAMPUS TITLE AND/OR CAMPUS TITLE’s UNDERWRITER.