As you’re well aware by now, when buying a new home you need to purchase title insurance, as this protects you in case the seller does not have a free and clear title to the home they’re selling. But what about new construction, surely the same rules don’t apply, right? Wrong.
When you buy a home, the original seller is transferring that title deed to you. This is on the assumption that the seller themselves has full possession of the title, without any liens on the property or shared interest in the property.
This is where the title company comes in. They will perform a title search on that property to ensure the deed is free and clear. And as much of a pain and frustration it is when the title company uncovers a title defect or issue, it’s better to find out now than when it’s too late.
There are, however, circumstances that can arise where ownership of the title can fall into dispute. Somewhere along the line someone may have misfiled or improperly recorded the paperwork related to the title, there could have been fraud involved, or an heir could suddenly come out of the woodwork and claim that the family property is partially theirs. And when you consider the costs involved with a legal saga, or the possibility that you could lose the property in the end, the cost of title insurance doesn’t seem all that expensive in comparison.
Now you may still be wondering, “OK, that’s all fine and dandy. But these scenarios all involve properties with a previous owner. What about new construction, I’m off the hook, right?” Well, actually, no. Someone still owned the land which you are building a house on before you did, and the title to that land may at some point have come into dispute. To be frank, there’s no land you can rely on to be completely 100% claim-free. Any newly constructed home will be built on land that has been around for a long time, and may even have been part of a larger parcel that may have undiscovered claims.
No matter how confident you are in the builder or how many developments they’ve been involved in, there’s still a risk for things like a contractor putting a lien on the home. But even more important to remember, title insurance covers mistakes made in the recorder and registrar of deeds offices.
And one last point to remember, in regards to the cost of title insurance. Consumers have the right to shop around for title insurance, they do not have to use whatever company their realtor or lender has chosen or recommended. As consumers, we routinely shop around for better prices on other things that are important to us, why not also do that for the most important and arguably most expensive purchase in your life.