No, title insurance does not cover unpermitted work. Title insurance primarily protects property owners and lenders from legal disputes or ownership issues, like undisclosed liens or ownership conflicts. However, it doesn’t cover problems related to building code violations or work done without the necessary permits.
For example, if a previous owner remodeled part of the property without obtaining permits, title insurance won’t cover the costs to bring the work up to code. Understanding what title insurance does and doesn’t cover is essential to avoiding unexpected expenses after purchasing a property.
What is The Importance of Title Insurance?
Title insurance is a critical component of property ownership protection for homeowners and lenders. It safeguards against unforeseen title issues, providing peace of mind by confirming legal ownership of the property free from hidden complications. Without title insurance, homeowners could face unexpected legal challenges that might disrupt their ownership rights, creating significant financial and legal hurdles. With this insurance in place, both homeowners and lenders are assured of clear ownership, helping to make the home-buying process more secure.
What Does Title Insurance Cover?
Title insurance offers protection against a variety of issues that may arise with a property’s title, including:
- Property survey errors
- Boundary disputes
- Errors on the property deed
- Building code violations by a previous owner
- Conflicting wills
- Claims by an ex-spouse who didn’t sign off on the sale
- Forged documents
- Liens from contractors, taxing entities or previous lenders
- Encroachments
- Improperly recorded documents
What Does Title Insurance Not Cover?
While title insurance is valuable, it doesn’t cover all potential risks. For instance, it won’t protect homeowners against title problems they create themselves, such as failing to pay for home improvements or neglecting property taxes.
Additionally, title insurance doesn’t guard against eminent domain, which occurs when the government seizes private property for public use. Homeowners should understand these limitations to avoid confusion and ensure they have realistic expectations of what title insurance will and won’t cover.
What are the Types Of Title Insurance Coverage
1. Lender’s Title Insurance
Lender’s title insurance protects the financial interests of the mortgage company by ensuring it has the top claim on the property, above any other liens. When taking out a mortgage or refinancing, borrowers are required to purchase a lender’s title insurance to secure the lender’s investment in the property.
2. Owner’s Title Insurance
Owner’s title insurance protects the homeowner from title issues that could arise after the purchase. Coverage is usually equal to the property’s purchase price and remains valid as long as the owner or their heirs retain ownership. Unlike lender’s title insurance, this coverage is optional, but purchasing it offers peace of mind to homeowners regarding their legal rights to the property.
How Much Does Title Insurance Cost?
Title insurance is a one-time cost, with premiums typically ranging from 0.5% to 1.0% of the property’s value. For instance, on a $500,000 home, the cost of an owner’s title insurance policy would generally be between $2,500 and $5,000. Unlike other types of insurance that require ongoing payments, title insurance offers lifetime coverage with just a single premium.
Who Pays For Title Insurance?
Generally, the borrower pays for lender’s title insurance to protect the lender. For owner’s title insurance, it is common for the seller to cover the cost, providing the buyer with added security for their investment. However, this can vary based on regional practices or negotiation between the buyer and seller.
Where to Get Title Insurance From?
As a buyer, you have the freedom to choose your title insurance provider. While recommendations from your real estate agent or seller can help, it’s wise to conduct your own research to find the best option.
Many buyers opt for the title insurance company recommended by their lender, as their financial interests are aligned with the property’s clear title. However, be aware that some lenders may have a financial interest in the title companies they recommend, so it’s beneficial to weigh your options.
What Are Your Options When Finding Unpermitted Work
If you discover unpermitted work on your property, there are a few steps you can take to address it:
- Check the Original Blueprints: Verify if the work done matches the blueprints on file with your local municipality.
- Come Forward & Seek Assistance: Contact local authorities to discuss your options for legalizing the work, which may involve permits or inspections.
- Consult the Title Insurance Company: While title insurance won’t cover unpermitted work, your title insurance company may offer advice or refer you to professionals who can assist in resolving the issue.
