Do You Need Title Insurance When You Buy Land?



by Laura Mueller

You always want to be as protected as possible with any real estate investment that you make. For that reason, it makes sense to look into title insurance when you’re purchasing land. But what is title insurance, and how does it help protect you and your investment? Here’s what you need to know.

What is Title Insurance?

Title insurance is protection against title defects. The title itself is documented proof of ownership and the seller’s right to both possess and sell a particular piece of property. When you buy land, you buy the title, and are from then on the one with those rights.

In a perfect world, all land sales would go smoothly and no seller would mislead a buyer either intentionally or unintentionally. In the real world, however, things happen, and sometimes a title doesn’t turn out to be legitimate. And occasionally, buyers don’t find that out until after the investment has been made and the allegedly legitimate title has been transferred.

Here’s where title insurance comes in. If you have it, you don’t have to worry about losing the investment that you’ve put into a property if it turns out that it was not actually within the seller’s rights to list and sell it. It comes in handy in instances of ownership disputes, as well as in circumstances where the seller had a lien, unpaid taxes, or another property issue that should have prevented them from selling.

Do note that title insurance is different from mortgagee title insurance, which your lender will require you to purchase. Mortgagee title insurance protects your loan provider from title defects, while title insurance protects you.

Cost of Title Insurance

The price of your title insurance will vary depending on who you purchase it from. In general though, expect to spend about 0.5% to 1% of the amount you have agreed to purchase the property for. Even if you’re not keen to add another closing cost to your sale, it’s a small price to pay for the protection that you get. If you’re in a strong market position, you may be able to get the seller to cover the cost of your title insurance (mortgagee title insurance, however, is always the responsibility of the buyer).

Don’t Forget to Do a Title Search

Another key task in protecting yourself against title defects is to perform a title search before closing on the deal. The title insurance company you plan to use should do this for you, but if they don’t, talk to your real estate agent about other ways to have the title search done. This search will reveal whether there are any hidden title defects that you need to know about, and will ensure you get this information prior to making a considerable investment.

So, Title Insurance: Yay or Nay?

It is almost always going to be a good decision to spring for title insurance, whether you end up needing it or not. Even if a comprehensive title search doesn’t turn up anything suspicious, title insurance ensures that you will have nothing to worry about and that your assets are safe. When in doubt, the more protection you have, the better.

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