If you're selling property to a relative, getting title insurance might benefit both of you but it isn't always necessary. Title insurance does protect a lender or homeowner against losses created by problems with a property's title, or chain of ownership. A missed heir of a deceased owner, for example, can cause legal problems for the current owner. If you and your relative are comfortable with the home's title and don't see it as a serious risk, you don't need title insurance unless your relative is using a lender.
Title insurance is usually necessary if your relative is getting a mortgage. Lenders require title insurance because the insurance protects the real estate covered by the home loan. For example, if a person sues your relative over ownership, and your relative loses in court, the lender will make a claim against the title insurance for the loss. A lender's title policy does not cover your relative in a title dispute because the lender is the policy beneficiary.
You owe something to the buyer even if you're giving the property to the relative for little or no money. The extent and nature of the liability will depend on state laws and whether you have a sale agreement in writing with the buyer. A title insurance policy helps limit your liability. The title company will identify any problems that must be resolved before your relative can get insurance. You're able to handle any title problems before the sale, while the owner's insurance policy covers your relative in case a title issue is discovered later.
Both you and the relative benefit from title insurance. You don't have to worry about giving your relative a property with problems, and your relative knows the title is clear. If the title company makes a mistake, your relative can make a claim on his owner's policy. Unlike other insurance policies, you don't have to pay regular premiums; you pay it in full when you close the deal. Premium amounts depend on the insurer and your property, so you and your relative will have to decide who covers the cost.
If you're financing your relative's purchase through a private mortgage, you might be able to get a private lender's title insurance policy. Like the commercial version, it will also protect you against loss from a claim against the property while the borrower is paying the loan. Title policies do have coverage exceptions that differ by the insurer and policy. A common coverage exception is a problem not disclosed in any public records.
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