Due to the crisis in the real estate market, foreclosures have increased manifold. As a result, title insurance has suddenly become a hot topic, especially for the mortgage lenders. Whether you're buying a new property or a foreclosed property, the lenders will require title insurance to issue a mortgage. Due to the increase in foreclosures, the title insurance companies are re-examining if they should cover homes or how they should cover homes that have gone through foreclosure.
Let's take a look at what title insurance is all about.
Title insurance: What does it do?
This is a type of insurance which will safeguard your claim to a home. When you go for a title search, the title company will actually search to find out if anyone else has any claims over the property. Problems related to the title are normally resolved before the closing of the loan. If you're purchasing a foreclosed home and if the title company is not satisfied with what it sees, then you may not get an insurance policy.
This insurance is a protection which declares that the policy holder has the true claim to the property. It also promises to defend the policy holder in court if the claim to the title is ever challenged. If the claim to the property is lost, then the insurance company will reimburse the policy holder.
Title insurance: Whom does it protect?
Most of us do not know that there are two types of title insurance policy - lender's policy and owner's policy. Though the lender has taken out a policy, the buyer should also take out his/her own policy. The lender's policy will only protect the lender. The buyers can even purchase a title insurance policy after closing. If you make any improvements to the foreclosed property that you've purchased, you can even update the coverage to protect your full investment.
Title insurance: Who will get it?
Not all homebuyers who purchase a foreclosed property will be able to get title insurance. Insurance companies are very cautious when they issue a title protection policy. Moreover, it also makes a difference whether or not you're purchasing the property from a bank or on the courthouse steps. Apart from this, it will also be taken into consideration if you live in a judicial foreclosure area or a non-judicial foreclosure area.
Title insurance: Should I go for it while buying foreclosed home?
You should make sure that you have an owner's title protection policy if you’re buying a foreclosed property. Before you close the loan, you should get a copy of your title insurance policy and read it. Check out the section marked as Schedule B. In this section, the title company spells out what it won't cover.