Title policies protect the buyer and the lender by providing a safety net in the event of someone challenging the ownership of the home or for any encumbrances on the property. These companies might be confused with an escrow services company or property and casualty insurance company, but it is a separate type of insurance.
Title policies offer two different types of protection. The buyer has specific coverage for owner. The mortgage lender's policy protects the lender.
What is not covered with title insurance in New Jersey is: damages caused by "Acts of God", such as hurricanes or thunderstorms. Fire damage is not a covered item. Title insurance does not insure against losses resulting from improper home inspections. As a last example, title insurance provides no protection against infestation.
There are a few examples of title policy situations where the sale of a property could be reversed by the courts. One example is if the purchaser later discovers that the former owner's ex-wife also had a claim to the property.Or maybe your neighbors dispute the boundary line of your property decades after the home purchase was completed. In the absence of a policy that defends your position, you could lose a very expensive fight and possibly your home.
The title insurer absorbs the risk for such circumstances; you'll be fine if you have title insurance to protect. Unfortunately, the title insurance company has no room for failure if they complete an incorrect title search. It's not always necessary to have title insurance, but it can eliminate headaches in the future.
The different types of title insurance are lender's title versus owner's title insurance. A lender's title insurance is required if you take out any mortgage loans to purchase your home. However, owner's title insurance is optional, and you can buy a home without it. If someone challenges your ownership of the house, you could end up in an expensive legal battle or lose the home entirely.
The cost of the owner's title insurance usually falls on the buyer, which makes sense because they are the ones with the most to lose from inadequate coverage. Since there are so many variations of laws surrounding home sales and insurance, you need to understand local requirements. Owner's title insurance might not always be required, making this cost optional and can be negotiated between the purchaser and the seller.
You should check with your state's governing agency for title company's rules and regulations to protect yourself from being maltreated. The factors that affect the cost of title insurance in New Jersey include:
If there is a title defect, the title company is allowed to charge for the reasonably expected cost to make the insured party whole.
The upfront effort is used to remedy any title issues.
The time and resources to complete the title search prior to providing the policy.
Research efforts performed on abutting land that could affect the policy holder's rights to ownership of their property are an allowable fee.
Who pays for title insurance and/or selects the policy provider is frequently up for negotiation in real estate transactions. We caution you that it's a bad idea for the buyer to use the same title insurance company that the seller used. The previous policy provider is unlikely to share any issues it missed on the prior policy, which could become a future problem, especially if it poses a substantial financial risk. This risk could become a severe issue for you as the buyer.
Is it a good idea to use the same title company as the seller to save money? No, it's not a good idea for the buyer to use the same title insurance company as the seller. The policy provider will be unwilling to disclose any issues they missed on the pre-existing policy, this can create a weak policy that will place you in a precarious situation as the new property owner.
Finally, the amount of coverage people choose to purchase for a title policy is often driven by their budget and only meets the minimum lending requirements. It's a better decision to understand what the insurance must cover to protect your interest in the property and pay for the policy that provides such coverage.
It's tempting to save money and reduce closing costs by skipping title insurance, or by decreasing coverages to lower the cost. We would always caution against being penny wise and pound foolish.