Buying real estate is one of the biggest investments you will make in your life, which is why it’s important to become financially smart and prepared when doing so. Although vacant land doesn’t have a lot to maintain compared to a house, there are still costs that you have to prepare for.
One way that home and land buyers alike can protect themselves from financial strain is by obtaining title insurance. In this article, we lay down everything you need to know about it and whether or not you need it when buying vacant land.
What is Title Insurance?
Title insurance is a policy obtained from an insurance company that can cover the costs of defects, title issues, and property loss or damage sustained because of liens or encumbrances on a property title.
When buying a home or a parcel of land, there are tendencies wherein previous owners fail to disclose or settle the costs of upkeep, legal documentation, taxes, among others. Statistics show that over 25% of real estate transactions have issues with titles.
Title insurance can help protect you from settling outstanding debts incurred by the previous owners and any claims on the property in the long run. In essence, its objective is to stop and cover title issues before they even arise and wreak havoc on your investment.
Do You Need Title Insurance for Vacant Land?
Title insurance is most commonly seen in home purchases because of the associated costs involved in buying a built property. However, that’s not to say that it isn’t beneficial to land buyers. Titles on vacant land can also have uncertainties and defects, and it’s important that land buyers can protect themselves from liens and claims on their properties.
Even if the ownership of the land has been transferred to you, it does not necessarily mean that the ownership rights of the previous owners are immediately terminated. Title insurance can protect you from risks and errors committed by the previous owners of the land, such as property tax debts, encumbrances, etc. With an insurance policy covering your rightful title to the property, you are guaranteed protection against past, present, and future claims.
Title insurance policies offer one-time payment coverage that can cover and protect you for as long as you and your heirs own the land. It goes a long way to ensuring that you are worry-free and stress-free as you enjoy the new land where you will build your home.
What Type of Title Insurance Should You Obtain?
Title insurance comes in two kinds: an owner’s policy or owner’s title insurance and a loan policy or lender’s title insurance. The former protects the buyer of the property while the latter protects the lender. The type of title insurance you need is owner’s title insurance.
Owner’s Policy/ Owner’s Title Insurance
The owner’s policy or owner’s title insurance is what you need to obtain when purchasing vacant land. This will cover the costs of any issue that is passed down to you from the previous owner of the lot.
An owner’s title insurance policy covers the amount of the land’s purchase price and lasts as long as you and your heirs own the property. It also identifies risks before closing and pays claims and defense costs against title defects, claims, and attacks.
Loan Policy/ Lender’s Title Insurance
The lender’s title insurance or loan policy applies to the money that your lender loans you in case of any problems with the title or property. Issued in the amount of the loan, it protects the security interest of a lender and reduces as the mortgage debt is paid.
Who Pays for Title Insurance?
Who obtains and shoulders the costs of title insurance would depend on the local customs in your area. In some states, sellers are in charge of purchasing the owner’s title insurance for the buyer to guarantee that the title is clear. However, there are also states that require the buyer to carry out their own owner’s policies.
It’s important that you do your due diligence and study title insurance. Be aware of the laws that your state has about this subject so that you can make the best decisions for your property.
Obtain Title Insurance to Protect Your Rights
Buying vacant land is a huge investment and one that you would want to take good care of. Aside from regular upkeep and maintenance, it’s important to look at the financial side of things and to ensure that you and your heirs are protected against claims of ownership or undue costs.