Does the First Owner of a Home Really Need Title Insurance?

In the early 2000s, Fairfax County in Virginia, just outside of Washington D.C., was experiencing the peak of the housing boom. Like many other communities in the US at the time, their local government was inundated with thousands of new home applications and in the rush to clear the backlog, some employees were less than careful with their application examinations.

Helen Krause, marketing director of New World Title and Escrow in McLean, explains, “Some of the homes that had approved applications and were built exceeded county building height limitations. Years later, the county government decided to enforce the building height limits and required the owners to either lower their roof or lower their grading to meet those restrictions.”

While there’s no question the owners experienced upheaval and stress during the readjustment of their rooflines, Krause says that owners who had purchased owners’ title insurance policies had a much easier time. The bills for their changes were covered, so they were only inconvenienced without having to pay for the construction as well.

Buyers of newly built homes frequently (and mistakenly!) assume that because they’re buying a home which no one else has ever owned, title issues will not be a problem. In actuality, title insurance is critically important to buyers of a brand new house. While the house itself is new, the land the house is built on is not, so you may be more likely to have a third party make a claim. Common potential title problems with newly built homes are ones related to legal ownership of the land on which your home is built and to mechanic’s liens. In a brand new subdivision, you need to make sure the land was properly subdivided and that your home is on the correctly identified lot so that there’s no ownership questions in the future.

The first owner can actually be more at risk for title defects than subsequent owners because this is the first time the title has been reviewed since the land was purchased, often quite some time before. For example, if the land on which your home has been built was once jointly owned by a married couple who have now divorced, or by a group of siblings or family members, there’s a chance it was sold to the builder without the knowledge of one party. That part-owner can potentially make an unexpected title claim if they we not properly informed of the sale.

To protect their investment and safeguard against any unpleasant surprises, new home buyers can opt for either standard or enhanced owners’ title insurance. Basic coverage insures your ownership and identifies any restrictions on your use of the property. Enhanced title insurance provides additional coverage for potential problems like zoning violations or builder permit violations. Enhanced coverage also protects against disputes over things like fences, unpaid mechanic’s liens, and mineral rights that could impact your property. Unlike many other ongoing expenses of homeownership, title insurance is paid with a one-time premium at settlement. 

Title problems are rare but can be ruinous, causing you to lose your home or preventing you from being able to sell it down the road. If you have a title insurance policy, you can feel secure in the knowledge that not only will the policy cover things like legal research and court costs, but also pay any back loans or liens if they are legitimate. Your title insurance company will handle the entire issue without cost to you, once you’ve paid the initial premium.

Many builders offer incentives to buyers who work with their preferred title company to settle their transaction, but you should shop around to be certain you are working with a company that offers the best rates and excellent customer service. Setco Services is proud to be a trusted local title agency, with strong ties to the community and a passion for ensuring that our clients have the best possible experience as we walk them through the closing process. We partner with Fidelity National Financial, one of the top underwriting companies in the industry, so our customers can trust that every last detail of their home’s history will be verified and they can take possession with confidence in their ownership. Please click below to learn more about our customized closing service or to contact us with any questions you may have about the protection owners’ title insurance can afford.

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