Title insurance is a routine part of almost every home purchase. Actually, there are usually two title insurance policies. The first is the owner’s policy, which the seller typically pays for. If, after the closing, a flaw in the title turns up that you weren’t warned about, the owner’s policy requires the title insurance company to fix the problem or pay you for any financial loss.
If you get a mortgage, you’ll pay for the second policy – the lender’s policy. This insurance guarantees that the lender is getting a valid first lien on your home. You’ll pay for this one.
Before the closing, the seller will provide a title insurance commitment for review. This is an important document. It alerts you to the actions the seller must take to deliver clear title at the closing – such as paying off the existing mortgage. But it goes further. It informs you about matters that will affect your ownership and that will remain in place even after the closing.
Here are some items to look for:
- Building and Use Restrictions. You’ll usually find these if the home you’re buying is in a subdivision – though they sometimes apply to property that’s not in a subdivision.
- Homeowners Association. Many homes are part of a homeowner’s association that enforces the building and use restrictions, and may also have maintenance duties. You’ll typically have to pay periodic fees and assessments.
- Condo Bylaws. Whether your condo unit is free standing or in a building with other units, there will be a condo association that enforces the rule set out in bylaws. As with a homeowner’s association, the directors can levy fees and assessments.
- Road Maintenance Agreement. If you reach your home over a private road that you share with other owners, there may be an agreement describing how the road will be maintained – and how the costs are allocated among the owners.
- Shared Driveway Agreement. Especially in older areas within cities, two or more homes may share a driveway. If so, there may be an agreement – similar to a road maintenance agreement – that deals with repairs and cost sharing.
- Tax Liens. Unpaid property taxes may be a lien on the property. Also, in some cases the IRS may have imposed a lien to cover income taxes that the seller owes.
- Construction Liens. If the current owners haven’t paid in full for recent home improvements, a contractor or supplier may have placed a construction lien on the property.
- Most home sites are subject to easements for utility lines. You won’t be able to place any permanent structures within the easement areas. There may also be access easements that let neighboring owners use part of your property to reach their own homes.
The attorneys at the Ann Arbor law firm of Hamilton, London, & Davis can review the title insurance commitment for the home you’re buying, and help you avoid surprises down the road.