7 Reasons Homeowners Need Title Insurance

Purchasing a house is a momentous occasion and likely one of the biggest purchases you’ll ever make. Such an investment requires proper protection, especially considering it’s the very place you and your family call home. One way to protect your property with title insurance. Here are seven reasons why title insurance is vital for homeowners’ financial security.

WHAT IS TITLE INSURANCE?

First, let’s review what title insurance does. A title is the evidence of ownership and possession of property, which stands against the right of anyone else to claim it. Title insurance is a means of protection against financial loss, should any title defects or third-party claims arise from your title.

There are two types of title insurance policies:

1. An owner's title insurance policy is a policy of indemnity and protects the homebuyer’s property rights against covered claims that may surface after purchase. While not required, it is always in your best interest to purchase an owner’s title insurance policy.

2. A loan policy (or lender’s policy) insures the financial investment of the lender or bank, and is typically required to get a mortgage loan.

REASONS TO PURCHASE TITLE INSURANCE

1. A THOROUGH TITLE SEARCH

Before you commit to buying or refinancing property, a title examiner will examine title plants or public record databases to determine ownership of the property and to uncover deeds, mortgages, wills, divorce decrees, court judgments, tax records, liens, encumbrances, bail bonds and maps associated with the property. This search is designed to disclose any potential title defects or legal issues ahead of time.

2. PROTECTION FROM UNFORESEEN DEFECTS

Even after the most exhaustive title search, there is still a chance that unforeseen title defects could surface long after you’ve purchased your new property. Title insurance protects the policyholder from undisclosed:

• Liens that are the result of a prior owner’s actions, which can be placed against the property by a contractor, tax authority or lender who hasn’t been paid.

• Easements or a third party’s right to use or access your property, even though you are the owner. Say a utility or sewer line runs through your backyard. If so, the utility or sanitation company has an easement allowing them to access your property. That easement could also prohibit you from using your property however you want, such as building a garage or adding a pool.

• Encumbrances or other forms of claims against the property, which can include restrictive covenants imposed by homeowners’ associations or leaseholder rights.

• Outstanding debt from the previous owner, such as mortgages, judgments, unpaid child support or unpaid taxes.

• Conflicting wills or an undisclosed/unknown heir of a previous owner suddenly claiming ownership.

3. PROTECTION FROM UNFORESEEN RISKS OR CLAIMS

If the previous record owner was deceitful, or an error was made in any documents, title insurance will protect you from certain covered risks, not exceeding the amount of the insurance policy, including a defect in title caused by things like:

• Forgery of documents

• Fraud or impersonation of the property’s true owners

• Clerical errors that result in a document not being properly filed, recorded, or indexed in the public records.

4. PROTECTION IN COURT

Should a covered defect in your property’s title or a claim arise, your title insurance underwriter will protect your financial interests, including defend you in court and settle any covered claims for you.

5. A LOW ONE-TIME PAYMENT

Unlike most insurance policies that have monthly premiums, owner’s title insurance requires a one-time fee at closing. This one-time fee typically accounts for about 1% of the purchase price and protects you from covered risks for as long as you or your heirs own the property. Check out Old Republic Title’s Rate Calculator to find rates in your area.

6. DIFFERENT FROM HOMEOWNER’S INSURANCE

While often confused, title insurance is not the same as homeowner’s insurance. The latter protects the property structure and your belongings, while title insurance protects your right of ownership to the property.

7. PEACE OF MIND

Title problems (“defects”) are relatively common. While most of them can be fixed, you can’t fix something that is unknown. Chains of title can go back hundreds of years, during which time documents can be lost, destroyed or never filed. Title defects that come to light after the transaction can threaten property rights and create costly title disputes without the security of title insurance.

If buying or refinancing a home is on the horizon for you, purchasing title insurance should be, too! Fees vary by state, so contact your local Old Republic Title representative for more information.

Economic Update Q2 2024

July 11, 2024

Although a lack of rate movement by the Federal Reserve (The Fed) postponed the real estate markets’ rebounds this quarter, there were silver linings. A subdued spring buying market meant that sustained home construction gave a much-needed boost to the national housing stock. The slide on the commercial side leveled and consistent interest rates brought some certainty to valuations. Looking forward to Q3, confidence is going to be key to reviving transactions.

Residential Real Estate

Stubborn inflation stayed The Fed’s hand from reducing its rate this quarter, deferring the anticipated housing market full recovery. Homebuyers were frustrated by worsening affordability. The 30-year fixed mortgage rate returning to the low 7s in April and median existing home prices¹ hitting a new high in May were dark clouds over demand. Consequently, existing single-family home sales were virtually flat in the second quarter and down 2.4% year- over-year. New home sales rose only 2.6% this quarter and were roughly the same as Q2 2023.

Fortunately, the supply picture was brighter. Active, new and total home listings have been on the rise over the last seven months, according to REALTOR.com². New construction also prominently boosted listings. Although builders' confidence³ faltered with each Fed meeting, they continued to add to the housing stock; annualized single-family housing starts were firmly above 1 million units over the last three quarters. The current inventory position, prices and room for concessions are supportive of much-needed building.

As the chart⁴ below shows, underbuilding has been an issue since the Great Financial Crisis. According to the National Association of REALTORS^®, the housing stock is short about 4.7 million units. The National Association of Home Builders estimates that housing starts need to be above 1.5 million units for several years to rebalance the market. Although the temporary pause in sales growth is disappointing, it does afford the industry time to boost its supply in anticipation of better buying conditions.

Commercial Real Estate (CRE)

Without an interest rate reduction jolt, the CRE market settled into a low, but steadier state in the first half of the year. CoStar data showed that Q2 2024 transactions had a slight uptick from the previous quarter for the four major asset groups, to approximately $50 billion. On an annual basis, drop-off of deal volume moderated to about 40% after spending multiple quarters in the 50% range. There was minimal movement in cap rates this quarter. According to CoStar’s U.S. Composite Value Weighted CCRSI, price declines lessened, possibly indicating a market floor. Distressed deals accounted for less than 3% of activity in May.

Bisnow reported that private equity and non-bank lenders are working in the background to make capital infusions and refinancings possible. Loan modifications⁵ for 2024 were also on record pace at over $9 billion by the end of May. The absence of distress drama and the industry’s resilience so far in 2024 were surprises to many market participants, according to a recent survey.

Opportunistic owner-occupier acquisitions accounted for a good share of Office activity but the sector remained ladened with vacancy rates⁶ at 13.8%. For Retail, the supply side was very tight, keeping vacancy rates at a record low of 4.1%. The unprecedented delivery of apartment units over the last 12 months drove down annual rent growth to 2.8% in April. However, the rent/buy decision stayed solidly tipped in rental’s favor; vacancy rates stabilized at 7.8%. Industrial deal activity was markedly positive in Q2 2024, reflecting its excellent prospects. AI technology and the resurgence of data centers also brought more attention to Industrial. As one investor⁷ recently noted, “All the best and brightest institutional investors are trying to buy industrial right now.” While net absorption dropped off with the rightsizing of the post-pandemic economy, industrial rent growth was still strong at 4.7%, per JLL.

A Glance Forward

The mildly positive current trends the economy and residential real estate markets experienced in the second quarter are expected to continue this summer. If inflation inches down with little worsening in the job market as Fannie Mae forecasts, The Fed will likely cut rates this fall. The Mortgage Bankers Association expects the 30-year fixed rate mortgage to stay slightly below 7%, breathing a bit of life into the housing market.

Housing starts will likely continue above 1 million units, improving inventory and softening prices. According to Fannie Mae’s recent Home Purchase Sentiment, the “locked in” effect may be fading, as sellers are increasingly motivated to sell by life events and financial reasons. While buyers remain wary, they have not forgotten to “date the rate, marry the house,” evidenced by an expected return in refi originations. Given these factors, economists expect an uptick in new and existing home sales.

Confidence may be crucial to the upcoming quarter’s CRE market as well. The steadfastness in The Fed’s position has removed one of the impediments to deals – uncertainty over rates. This has brought confidence in valuations, making refinancings and new deals easier. According to Bisnow, Industrial deals have been the first beneficiary of this situation, and Retail and Multifamily may not be far behind, given the growth in targeted investor funds for these sectors.

It seems that everyone could use a bit more confidence this swimsuit season.

¹Copyright ^©2024 “Existing Home Sales Edged Lower by 07% in May as Median Sales Price Reaches Record High of $419,3000.” NATIONAL ASSOCIATION OF REALTORS^®. All rights reserved. Reprinted with permission. Existing-Home Sales Edged Lower by 0.7% in May as Median Sales Price Reached Record High of $419,300 (nar.realtor)

² REALTOR.com. May 2024 Housing Market Trends Report—Realtor.com Research

³ National Association of Home Builders. NAHB/Wells Fargo Housing Market Index (HMI) | NAHB

⁴ U.S. Census Bureau and U.S. Department of Housing and Urban Development, New Privately-Owned Housing Units Started: Total Units [HOUST], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/HOUST, June 27, 2024

⁵ CRED IQ. Loan Modifications Swell 195% in 12 Months: CRED iQ | CRED iQ Blog (cred-iq.com)

⁶ Copyright ^©2024 “Commercial Real Estate Market Insights, May 2024.” NATIONAL ASSOCIATION OF REALTORS^®. All rights reserved. Reprinted with permission. July 2024, PowerPoint Presentation (nar.realtor)

 

The FAQs of Title Insurance For Homebuyers

For most of us, a home is the largest investment we'll make in our lives. To buy with confidence, get owner's title insurance. It's the smart way to protect your property from legal claims. To help you understand how owner's title insurance works, here are answers to common questions.

What is title?

Title is your right to own or use your property. Title also establishes any limitations on those rights.

What is a title search?

A title search is an early step in the homebuying process, conducted of the public records, to uncover issues that could limit your rights to the property. If a title issue is discovered, most often your title professional will take care of it without you even knowing. After the title search is complete, the title company can provide a title insurance policy.

What is title insurance?

If you're buying a home, title insurance is a policy that protects your investment and property rights.

There are two different types of title insurance: an owner's policy and a lender's policy.

1. An owner's policy is the best way to protect your property rights. Either the buyer or seller may pay for this policy. Ask your title professional how it's handled in your area.
2. A lender's policy is usually required by the lender and only protects the lender's financial interests. The buyer typically pays for this policy, but that varies depending on geography. Ask your title professional how it's handled in your area.

Why should I purchase owner's title insurance?

Owner's title insurance protects your investment in your property from certain future legal claims regarding ownership of your property. For a one-time fee, you and your heirs receive coverage for as long as you own your home. The owner's policy also covers potential legal fees and court costs for settling claims covered by your policy.

What does owner's title insurance cover?

Sometimes undiscoverable defects can come up after the title search. Under an owner's title insurance policy, you are protected against certain undiscovered errors in the title.

Title issues include unknown:

• Outstanding mortgages and judgments, or a lien against the property because the seller has not paid his taxes
• Pending legal action against the property that could affect you
• Unknown heir of a previous owner who is claiming ownership of the property

Unforeseeable title claims include:

• Forgery: making a false document
  - For example, the seller misrepresents the identity of the person who sold the property.
• Fraud: deception to achieve unfair gain
  - For example, someone steals your identity and either sells your house without your knowledge or consent, or takes out a second mortgage on the property and walks away with the money.
• Clerical error: inconsistent paperwork and historical records
  - For example, an unforeseeable discrepancy in the property or fence line can cause confusion in ownership rights.

What does owner's title insurance cost?

The one-time payment for owner's title insurance is low relative to the value of your home.

How long am I covered?

Your owner's title insurance policy lasts for as long as you or your heirs own your property. Your life will change over time, but your peace of mind never will.

What happens at closing?

Closing is the final step in executing the homebuying transaction. It is the process that allows the transfer of ownership to occur. Upon completion of the closing process, you get the keys to your home!

Where can I get more information?

The American Land Title Association helps educate homebuyers like you about title insurance so you can protect your property rights. Check out www.homeclosing101.org to learn more about title insurance and the home closing process.

This advertising offers a brief description of insurance coverages, products and services and is meant for informational purposes only. Actual coverages may vary by state, or locality. You may not be eligible for all of the insurance products, coverages or services described in this advertising. For exact terms, conditions, exclusions, and limitations, please contact an Old Republic Title representative.

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What Is Title Insurance And Do I Need It?

Amy FontinellePersonal Finance Expert

Reviewed

Chris JenningsDeputy Editor, Loans & Mortgages

Updated: Jun 14, 2023, 12:40am

Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors' opinions or evaluations.

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When you take out a mortgage, one part of your closing costs will be title insurance. The premium is a one-time charge, and the policy protects the lender. You also can purchase owner’s title insurance to protect yourself, but it’s not required.

Here’s what you need to know about what title insurance: What it covers, how much it costs and whether you should buy it.

What Is Title Insurance?

Title insurance is a policy that covers third-party claims on a property that don’t show up in the initial title search and arise after a real estate closing. A third party is someone other than the property’s owner, such as a construction company that didn’t get paid for its work on the home under a previous owner. The term “title” refers to someone’s legal ownership of the property.

A title claim could arise at any time, even after you’ve owned the property with no problems for many years. How could this happen? Someone else might have ownership rights that you don’t know about when you make an offer to buy a property. Even the current owner might not be aware that someone else has a claim on the property. In the case of an overlooked heir, even the person who has those rights might not know they have them.

Before your home loan closes, your mortgage lender will order a title search from a title company. The title company searches for public records related to your home to try to find any title defects that could affect the lender’s or buyer’s property rights such as:

• Liens can get placed on the property by a contractor, tax authority or lender who hasn’t been paid. You don’t want to get stuck paying a previous owner’s unpaid bills.
• Easements are someone else’s right to use your property even though you are the owner. For example, if there are utility lines in your backyard, the utility company will have an easement that allows them to access your property if they need to work on the lines. The easement could limit your ability to use your property however you want.
• Encumbrances include liens (also called “financial encumbrances”) as well as easements, but also include zoning laws, restrictive covenants imposed by homeowners associations and leaseholder rights.

A title company searches public records including deeds, mortgages, divorce decrees, court judgments, tax records and child support orders.

If the title search reveals any problems (also called “clouds”), the title company will try to resolve them. In some cases, your real estate agent will need to work with the seller’s agent to get the seller to resolve the problem. In other cases, the problem may be significant enough to derail the sale.

Navigating the Current Housing Market: Finding the Brighter Side

December 20, 2023

If you’ve been following the housing market, you’ve undoubtedly seen some discouraging trends. While it’s true that mortgage interest rates and home prices are rising to levels we haven't seen in a long time, it’s important not to forget about all the benefits of owning property. Whether you’re a prospective homeowner or real estate investor, there are still advantages to investing in real estate – even in the most challenging market.

1. Long-Term Appreciation: The housing market has a proven track record of solid appreciation over the long term. According to the Federal Housing Finance Agency (FHFA), the U.S. housing market has experienced positive annual appreciation since 2012. The Q3 2023 FHFA House Price Index (FHFA HPI^®) reports that U.S. house prices rose 5.5 percent between Q3 2022 and Q3 2023, which was 2.1 percent higher than Q2 2023. To find appreciation rates in your state for the last quarter, year or five years since 1991, click here.

2. Historical Agility: The housing market is known to be cyclical, with distinctive highs and lows. There is nothing new about the current downturn in rising interest rates, escalated property values and scarcity of inventory. Mortgage interest rates fluctuate over time, and although they have doubled within the past few years, they are still historically low. During the 1980s, rates for a 30-year fixed-rate mortgage were as high as 18 percent, which is significantly higher than the current average of roughly 7 percent.

House prices are subject to fluctuations, as well. Supply and demand drive home prices; when there is a shortage of supply, prices often rise, and vice versa. Market factors, such as location, have a significant impact on real estate prices and national data only provides partial information. For instance, a downturn in California can mask a boom in Florida.

3. Hard Asset: Real estate is a physical entity, or a “hard asset” with intrinsic value, unlike stocks or bonds. It will never become valueless and has the potential to generate a steady cash flow. Regardless of fluctuations in the economy, hard assets are considered highly valuable.

4. Diversification: Real estate offers a large variety of property types, making it easier to diversify investment portfolios. Some of the various property types range from residential properties, vacation rentals and fix-and-flip investments to office and retail buildings, agricultural land and Real Estate Investment Trusts (REITs). A diversified investment portfolio provides several benefits, including flexibility, risk mitigation, income stability, capital appreciation and market exposure.

5. Tax Benefits: As a homeowner, there are certain tax benefits that could return money to your pocketbook each year. If you obtained a mortgage loan to purchase your home, the interest you pay may be included as a deduction on your annual tax return. The state and local real estate taxes paid to the taxing authority may also be included as a deduction. If you receive rental income from real property, such as a vacation home for short-term stays, you may deduct certain expenses on your tax return for managing and maintaining the property, such as interest, taxes, advertising, maintenance, utilities and insurance.

Real estate investors also benefit from tax programs such as the 1031 Exchange and the Opportunity Zone incentive. A 1031 Exchange allows an investor to defer payment of capital gains by reinvesting the proceeds of an appreciated property to acquire a like-kind replacement property. The Opportunity Zone incentive offers tax breaks for investment in low-income census tracts. The longer an investor holds the investment in a qualified opportunity zone, the greater the tax benefits. That includes the possibility of permanently excluding the gain when the qualified investment is sold or exchanged after 10 years.

6. Creative Funding: There are multiple financing solutions for obtaining real estate. Traditional real estate financing is often accomplished through a conventional bank loan, but there are several other options available, including, but not limited, to:

• Private Money Lenders: Money from private investors is leveraged for a predetermined interest rate and a shorter-than-usual payback time, generally a few months to a year. Acquisitions involving real estate investments are the main reason for this kind of funding.

• Hard Money Lenders: This type of financing is often used by home flippers with less-than-perfect financial histories who need a short-term loan for home renovations. It generally includes costs on top of the loan interest.

• Seller Carryback Financing: The seller of a property provides financing to the buyer, instead of the buyer obtaining financing through a bank or mortgage company.

• Rent-to-Own: A written contract that allows prospective homebuyers to rent a property for a period of time (commonly, two to five years) before owning it. For more information about rent-to-own agreements, click here.

There are also several government agencies that provide housing loans and mortgage assistance programs.

7. Title Insurance as a Risk Mitigator: Title insurance is important because it helps to mitigate risks by ensuring that the property you are purchasing or refinancing has a clear and marketable title. Even after the most meticulous search of public records, there can be hidden title defects, such as tax liens, forged signatures and recording errors. These title defects can remain undiscovered for months, or even years, after you purchase the home. Without having title insurance in place, property owners risk incurring extensive legal fees or losing their entire investment.

If you’re a prospective homebuyer or real estate investor looking for answers to FAQs about title insurance, click here. You can also debunk eight common misconceptions about title insurance here, or explore common title problems and how title insurance protects your investment here.

When deciding whether to purchase real estate, don’t forget to weigh the pros with the cons. Doing so can help you answer the question, “Is real estate a good investment for me?” In many cases, the answer may be, “Yes!” According to the National Association of REALTORS^® 2023 Profile of Home Buyers and Sellers, 82 percent of homebuyers continue to see purchasing a home as a good financial investment. Regardless of where you stand right now, if or when you choose to move forward, always do your homework and strongly consider consulting a real estate and tax expert to cover all your bases.

When you’re ready to make a move, Old Republic Title will be here to protect your property rights. We have a nationwide network of professionals who understand how important your investment is and offer products and services that fit your needs. To learn more about title insurance and working with Old Republic Title, contact a representative near you.