Title Insurance Risks

A large portion of our days at Loan Ranger Capital are spent with our borrowers, title companies, and the interactions that all parties to a real estate deal experience. Whenever Loan Ranger sets out to fund a possible deal, we always speak with folks at the title company our borrowers choose to work with. One of the first things we do during these discussions is order what is known as title insurance. This is a commitment from the title company to guarantee that the pending transaction’s title is free of any liens or other issues that would compromise the overall transaction. Title insurance is vital to what we do here at Loan Ranger Capital, as it gives us peace of mind knowing the title company has worked diligently to ensure that the only two parties with any interest in a certain property are the ones at the closing table.

Here are some great reasons you should always have title insurance when closing any real estate deal, not just a hard money loan:

1) Fraud

Unfortunately, fraud is becoming a larger and larger issue in the world of real estate. Everything from wire fraud, where a criminal may impersonate a title company or steal banking information, to forging documents that establish liens on properties are becoming everyday worries. Anything that manages to snake its way onto title can be potentially fatal in a real estate transaction, and title insurance helps prevent this from occurring.

2) Illegal Deeds

Title insurance also guarantees that each party at the closing table has the right to transact real estate. Some examples of parties that are unable to buy or sell real estate include: minors, individuals falsifying marital status, anyone of unstable mental capacity, or those residing in the United States illegally. If a party did not obtain title insurance, there would be no way to guarantee both parties can transact real estate. This could threaten one party’s ownership rights if found later.

3) Heirs

Family members passing away can mean that property owned by the deceased can pass to those listed in their will. In certain cases, these heirs may not be able to be located, or otherwise inhibited from taking ownership of the property in question. In other cases, those not listed in the will of a deceased person may contest that will and try to establish their own rights to the property. Title insurance guarantees that these issues have been resolved, and that your rights to the property will be secure.

4) Unknown Liens

Liens are ownership rights that individuals, companies, and even levels of government can place against a property for unpaid work, taxes, or other kinds of judgment during a property’s use. A common example is unpaid property taxes. If taxes remain unpaid by the time a property is sold off, you may be liable for those taxes without title insurance in place.

5) Identity Theft

Impersonating a property owner can have negative effects on future owners of that property. Title insurance guarantees that the sellers’ and buyers’ identities are correct and factual; ensuring your property rights are intact.

6) Public Record Errors

One of the scariest things to think about in real estate is making sure the property you are in the process of transacting is the correct one! Properties are not understood in the real estate business by their mailing addresses, as those are subject to frequent change. Rather, real estate is outlined in more permanent, unique, formats called legal descriptions. These descriptions were taken when land was first surveyed for development, and does not undergo much change over the course of its life. No matter what may be built on a piece of land over the course of years, the legal description will almost always be the same. Title insurance guarantees that the legal description of the property in question is that property you mean to buy or sell.

7) Boundaries

Boundaries tie in somewhat with public records, in that having title insurance insures that the property in question is the one you mean to be doing business over! Two parties may survey the property slightly differently, and having the proper insurance means that an updated survey can take place for this transaction. In this manner, both parties can be secure in the knowledge they are transacting over the same property.

8) Unrecorded Easements

Easements are encroachments on a property’s boundaries that prohibit an owner from using that specified area freely. Some great examples of this are local utility lines, sidewalks, and mandated setbacks from the curb. While they are usually recorded on a property’s title, having proper title insurance means you will be protected against easements that come to light after a deal has closed.

9) Wills

If a property owner dies with no will, their property will be sold to the state, which will usually in turn sell it to the public. In certain cases, after a property is sold to another party, a will may surface that names an heir to the property in question, thus throwing your ownership rights into question. Having title insurance confirms your rights to the property in a case such as this.

And there it is, a few great reasons title insurance should always be a part of your real estate deal! It is hard to argue against the peace of mind and security that title insurance can bring to the closing table, and I recommend it to anyone looking to close a real estate deal in the near future.

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