What Does Title Insurance Cover?

Protecting the homeowner from past defects associated with the home, title insurance protects the homeowner from items associated with the home’s previous owner(s). While most insurance policies cover future problems, the purpose of title insurance is to protect the current homeowner from what happened before the keys were theirs. Often required by mortgage lenders to protect themselves from financial loss, title insurance is not required for homeowners to purchase, but it is highly recommended. So before purchasing your own policy, you may be asking yourself: “What does title insurance cover anyway?” Let’s talk about it.

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What is Title Insurance?

Title insurance is like a safety net for homeowners and lenders. When you buy a house, you’re also buying the right to call it yours. But sometimes, problems from the past, like unpaid taxes or legal issues previous owners didn’t sort out, can pop up. These issues could threaten your ownership or cost you a lot of money.

This insurance covers past occurrences that might affect your right to ownership. With title insurance, your investment is protected if any claims against the property’s title arise, covering losses up to the policy limit. Additionally, it helps cover legal costs if you need to defend your title in court, offering much-needed peace of mind. This means that you can relax, knowing your real estate investment is secure from unforeseen legal challenges and ownership disputes.

What Does Title Insurance NOT Cover?

First, let’s discuss what isn’t covered by title insurance. Similar to other insurance policies, your coverage may vary depending on the type of policy you purchased. However, these items are not covered by title insurance:

Defects Created After the Policy Was Issued

If there are defects with the property title that happen after you’ve purchased your title insurance policy, these won’t be covered. A “defect” refers to any issue in the title that could impact your ownership, like a lien from a contractor who wasn’t paid for work done on your property after your policy began.

Defects or Problems Created by the Current Owner

This refers to issues directly caused by the actions or negligence of the property’s current owner. If the owner somehow compromises the property’s title after the insurance policy has been issued, those specific problems aren’t covered.

Issues Arising from Failing to Pay Your Mortgage

Title insurance does not cover financial problems, including failing to make mortgage payments. If you can’t keep up with your mortgage, this insurance doesn’t protect against possible foreclosure.

Problems Associated with Failure to Obey the Law

If there are legal problems due to the homeowner’s failure to follow laws, those are not covered. This could include building a structure without proper permits or not adhering to codes and regulations.

Losses Resulting from Rights Claimed by Someone Else Occupying the Land

If someone claims they have a right to part or all of your property because they’ve been using it, title insurance typically won’t cover these disputes.

Specific Taxes and Assessments

Title insurance often doesn’t cover certain taxes and assessments that may be levied on the property after the policy issue date.

Violations of Zoning or Building Ordinances

If there are issues because the property doesn’t comply with zoning or building laws, such as illegal land use or improper building sizes, these aren’t covered.

Condemned Land

If the land was condemned by the government before the policy date, or if a notice of possible condemnation was on record, title insurance won’t cover this. Condemnation means the government has taken the property for public use, like building a road.

Ownership Claims from Others Due to Water Bodies

If your property is on or near a body of water, and there’s a dispute over who owns parts of the land because of changes in the water’s path or level, title insurance does not cover these disputes.

Disclosed Restrictive Covenants

These are rules that restrict how you can use your property. If these were known when you bought the property, and you agreed to them, any problems arising from these restrictions aren’t covered.