There’s something really reassuring about the phrase “I’ve got it covered,” isn’t there? Especially when it’s coming from someone who you trust and respect to get the job done. For example? When you’re watching a movie and Dwayne “The Rock” Johnson says that he’s got it, you sit back, and know that whatever “it” is, it’s going to be taken care of the right way.
Knowing you’re covered can offer a remarkable level of peace of mind. And one area where a lot of people want to make sure that all their bases are covered and protected? That would be real estate.
For most of us, buying a home is going to be one of the largest and most impactful financial decisions we ever make. Fortunately, there are different types of protection out there, designed to help homeowners rest easier, knowing that they’ll be covered from certain errors, omissions, or issues down the line.
Title insurance is one such protection. Broadly speaking, handling title insurance is part and parcel of purchasing a home here in Chicagoland. It’s a routine part of most real estate transactions, particularly when a lender is involved. And yet, many prospective homebuyers and sellers don’t really have a firm grasp on what title insurance is, how it functions, or why it can be so important over time.
Generally, there are two types of title insurance that get handled during the closing of a real estate transaction – the lender’s policy, and the owner’s policy.
The lender’s policy protects the bank or mortgage lender, typically until the buyer’s loan is paid off or refinanced. Broadly speaking, in Illinois, this type of policy is a requirement to secure a loan, and is paid for by the homebuyer. The other type of title insurance is the owner’s policy, which protects the new owner of the home for the life of their ownership. This type of insurance is not required, and is often paid for by the seller, as a sign of good faith.
Now, because it is not required for a successful sale, strictly speaking, many parties often wonder why owner’s title insurance is necessary, and what protections it actually offers. After all, didn’t attorneys and title professionals just complete an exhaustive title search?
The reality is that there are many benefits to title insurance for owners, including:
1.) Wide-Ranging Protection
Title insurance is fairly broad and wide-reaching in terms of what it covers. It offers significant protection from losses and fees stemming from a number of potential issues, including:
- Forgery and fraud
- Undiscovered liens
- Problems with land use and access
- Easements, right of way, and encroachments
- Zoning disputes
- …and more.
2.) Lifetime Coverage
Typically, title insurance is a one-time payment, that extends indemnity protection for the entire time that you own a home. In other words? As long as you (or your heirs) possess the property, your one-time title insurance policy will still be in effect. And this means that while it’s offering you coverage, this policy is also likely gaining value over time. As Rebert Bruss notes for real estate news site Inman:
“… as time goes on, the owner’s title policy becomes more valuable. For example, suppose a property buyer purchases a $100,000 property with a $10,000 cash down payment and a $90,000 mortgage. The lender’s title policy initially protects the $90,000 mortgage. The owner’s title policy insures the buyer’s $10,000 equity. However, as the mortgage is gradually paid down, the owner’s insured equity interest gradually grows until the owner has $100,000 title protection and the mortgage lender has zero protection after the mortgage is paid in full.”
3.) Peace of Mind
Ultimately, it may be true that many homeowners (and lenders) never need to worry about their title insurance policy. And this is a good thing! Health insurance would be great if we never needed to use it, either, right? Most forms of insurance are an afterthought, or a nuisance – until we need to call on them for help.
So while title disputes and issues may not come up, this insurance may still be an important protection to have in place.
It can significantly help homeowners in a difficult situation; when title insurance does apply, there are few other forms of protection like it. This coverage helps protect homeowners against claims that very other few types of insurance can address.
Bottom line? It’s all about peace of mind for the homeowner. And for sellers, paying for this coverage upfront is a sign of good faith, and a way to encourage a buyer to take the leap and close on the purchase, knowing that their “Forever Home” has been thoroughly researched, and will be thoroughly protected from unforeseen issues down the line.
Want to Talk Title, or Any Other Aspect of Real Estate in Chicagoland?
Here in the Chicago area, there is a lot more that goes into real estate law than many people think. From processing purchase and sale agreements and title paperwork, to understanding the many moving parts of lease and rental agreement laws, security deposit laws, commercial development laws, and more, it’s a lot to take on alone.
When it comes to real estate transactions, how the paperwork is put together can significantly affect your long-term financial goals, including tax liabilities, your ability to get access to cash when you need it, estate transitions, and a whole lot more.
That’s where the attorneys and staff of the Gunderson Law would love to step in and help. The team at the Gunderson Law Firm possesses unmatched local expertise and insight, reinforced by years of experience and long-term connections throughout Chicago’s real estate, finance, and insurance industries, including professional relationships with some of the top title insurance companies in the world.
Want to discuss your real estate questions or concerns in more depth? Don’t hesitate to drop us a line to keep the conversation going.