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What is title insurance, and who pays for it?

If you've been crunching numbers in anticipation of buying a new home, then you've likely come across title insurance as one of those costs that you have to foot the bill for. If you've never purchased a home before, you may be wondering what it is, how much coverage you need and who pays for it.

What is it?

This type of insurance is what most mortgage lenders or buyers take out before a home's sale is finalized. The title company first researches the title to make sure that there are no unpaid taxes, fraud, pending legal proceedings, undisclosed heirs or other errors that would prevent the seller from transferring it to a new owner.

Once they've verified that the seller owns the property and that the title is clear, the title company has an underwriter step in a write an insurance policy for it. From then on, the title company is responsible for assuming any costs for problems or defects that may arise with the home's title.

Who's responsible for covering the costs of title insurance?

Payments for this coverage are either paid by the buyer or seller depending on the jurisdiction where the home is located. The person who pays in Augusta may be different from other parts of Georgia. It may be possible for the two of you to negotiate the payment of the title insurance between yourselves as part of the purchase contract as well.

How much coverage should you have?

Your title insurance policy protects you from a variety of contingencies including forgery, spousal claims, fraud and undisclosed heirs. Additional coverage can be purchased to cover additional concerns such improvements made that are unauthorized by a homeowner's association.

If your mortgage company is requiring you to have the insurance, then they may also request for the policy to include an adjustable-rate mortgage endorsement. If they do, then this will protect their right to get repaid first if your home is foreclosed on.

According to the American Land Title Association, at least one-third of public record or title searches result in a property defect being uncovered. Most can be resolved, allowing the purchase to move forward. An experienced residential real estate closings attorney can help you draft and negotiate contracts, title insurance and zoning concerns and due diligence analyses so that potential disputes are kept to a minimum.

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