By: Adam T. Petrun
June 1, 2021
If you buy a parcel of real estate, how do you know that the seller actually owns it? How do you know that there are not unpaid mortgages, unpaid taxes, municipal liens, judgments, child support deficiencies, or other problems that could be liens affecting the real estate? Even if the seller gives you his or her word that there are no such problems, should you rely on that?
The answer is absolutely not. When you purchase real estate, you purchase it subject to all liens that exist on the real estate, whether the seller knows about them or not. Once you complete the purchase, it is probably too late to convince the seller to pay off the liens that may affect title. Those are now your responsibility as the owner.
Instead of relying on the seller’s assurances, you should obtain title insurance to be sure that you are purchasing the real estate free and clear of liens. Title insurance is obtained after conducting a professional title search through a reputable title company, and is paid for with a one-time premium payment at closing. The cost is relatively inexpensive. For example, in a $300,000 purchase, the premium is about $2,100. The cost is based on the sale price or loan amount, whichever is higher. When compared with the risk of loss from mortgages, judgments, unpaid taxes, and the like, all of which could result in foreclosure, that is a relatively small price to pay for peace of mind.
The title insurance policy is good for so long as you own the property. Additionally, even after you sell the property, the policy will continue to protect you for any claims by your buyer that relate to a lien or other title issue for which you would have been covered if you still owned the property.
Real estate investors often think that quick cash sales of real estate at bargain basement prices are a good investment. These types of transactions can be a catastrophic mistake if the investor does not proceed with caution and make sure that title is clear. We always recommend any purchaser of real estate to obtain title insurance, as failing to do so may lead to unanticipated issues that could result in the loss of ownership or a sunken investment.
If you are obtaining financing for a sale through a mortgage lender, the lender will almost certainly require you to purchase a “loan policy” of title insurance for the lender. An “owner’s policy” is included with the purchase of the lender’s policy, which protects you as well. The loan policy protects the lender from monetary losses that could result from any title issues, and the owner’s policy is broader and generally includes things like easements or rights of way that could affect your right to use the property.
If you have questions about purchasing title insurance, would like to know more about the title search process, or would like to know more about the types of liens or other encumbrances that could affect your real estate, please contact our office at 412-486-2600. Our law firm and settlement company have the experience and knowledge to guide you through the process of purchasing real estate.