A mortgage is considered a popular offer of banks, with the help of which it is possible to purchase real estate at the expense of borrowed funds. If an object is selected in the secondary market, then borrowers must make sure that the transaction is legal and safe. To do this, it is optimal to use title insurance offered not only by insurance companies, but even by direct banks. It is preliminary important to understand what title insurance for a mortgage is, and also what are its advantages. Its cost depends on the price of the apartment and other factors, but often it is such insurance that saves citizens from the loss of expensive real estate.
What is mortgage title insurance?
It is represented by insurance of risks that are related to material losses incurred by the insured if, for various reasons, he loses ownership of the purchased apartment or house. You can lose your ownership for various reasons, which include:
- the seller upon receipt of the apartment by inheritance infringed on the rights of other heirs;
- the transaction was completed in violation of the law, for example, threats or forged documents were used;
- at the time of signing the contract of sale, certain fraudulent acts were committed;
- one participant was incompetent;
- one party did not have the necessary authority to sign an agreement;
- The transaction was concluded using forged documentation.
In the above situations, the borrower may be faced with the fact that his ownership of the property will be challenged. As a result, the apartment will be transferred to unauthorized persons, and the citizen will deal with the direct seller, who can refuse to return the amount received. In this case, the person will have to return the entire loan amount to the bank. Therefore , title insurance when buying an apartment on a mortgage is a great opportunity to protect your rights.
In Russian law there are quite a few situations in which a transaction for the sale of real estate can be invalidated. Therefore, the purchase of a separate insurance policy is a good way to protect against negative consequences.
When is it used?
You can challenge absolutely any transaction, so title insurance can be applied when buying real estate not only in the secondary, but also in the primary market. But most often, various disputes, disagreements and problems arise in cooperation with sellers in the secondary market. This is due to the fact that one apartment can move from one person to another for various reasons, as a result of which you can always challenge one of several transactions.
When is title insurance for mortgages? Most often, such an insurance policy is bought by people in the following situations:
- at the personal request of direct buyers who are not sure that the second party to the transaction is truly a responsible and reliable person, therefore there is a possibility of loss of ownership of the selected object;
- when applying for a mortgage, many banks require their borrowers to draw up such a policy, which allows them to protect buyers from significant risks and high losses;
- if the insurance object acts as a pledge when applying for a large bank loan, the bank may require the client to issue several insurance policies.
Most often, such an acquisition is forced.
What do insurance company employees do?
Before concluding an agreement with an insurance company, the client transfers to the employees of this organization all documents for the selected property. Specialists will conduct a thorough check of the object and documentation to make sure that the transaction is legal.
Employees of the company will be able to identify all possible threats in the future for property rights.
Can they refuse to sell the policy?
An audit conducted by employees of an insurance organization is beneficial not only to direct buyers, but also to employees of companies, since in this case they can be sure that they will not have to cover the losses of their client. There are situations when insurance companies refuse title insurance of an apartment. This is due to the fact that they identify any significant problems. Under such conditions, it is better for a citizen to refuse a risky acquisition.
Even if the firm agrees to sell the policy, people should still conduct their investigation. This is due to the fact that employees of insurance companies may miss any important details. As a result of our own research, serious problems can be identified, due to which it is advisable to refuse to sign the contract of sale.
Is title insurance required for a mortgage?
By law, such insurance is not mandatory, since banks can only require their customers to purchase an insurance policy for acquired real estate. But in practice it often turns out that bank employees require customers to purchase such a policy. This is because they want to secure the deal.
People may opt out of the title insurance policy. But in this case, the banking institution will simply refuse to issue a mortgage loan without giving a reason. Therefore, often people are simply forced to make such a purchase.
Policy cost
The cost of title insurance for a mortgage can be different, as it depends on the chosen insurance company and other factors. By default, it is equal to from 0.5 to 1 percent of the value of the purchased property, but in certain situations it can even reach 5% of the price of the property.
High cost is established in the presence of significant risks of losing an apartment for various reasons.
What factors affect the cost?
The price of the policy is influenced by various factors, which include:
- the period for which insurance is purchased;
- the size of the mortgage loan, for which housing is collateral;
- the results of the examination, which is carried out to check the transaction for legal purity.
If there are really visible risks, then the cost of insuring an apartment with a mortgage will be quite high, since the insurance company may face serious losses in the future. Funds are usually paid in a single payment, but if a citizen does not have the required amount of funds, then insurance companies often offer installments. Even if a mortgage is issued at 6 percent with state support, insurance companies may require a significant amount of funds when buying title insurance.
Terms of registration of the contract
If the bank requires borrowers to buy such insurance, then you will have to choose a suitable insurance company, which is a reliable and trusted organization offering an affordable policy. An official contract is concluded with this organization. How is title insurance for a mortgage arranged? The procedure is divided into the following steps:
- initially, the citizen chooses the property that he plans to acquire;
- Mortgage is requested at a banking institution;
- if preliminary approval is obtained, then the search for an insurance company that offers title insurance begins;
- Documents for the selected property are handed over to the company's employees;
- specialists carefully study the real estate and the seller;
- a written contract is drawn up between this organization and the buyer of the apartment;
- the period for which such an agreement is signed may vary from 1 to 10 years;
- the period of 10 years is considered the most optimal, since this period is represented by the limitation period for operations with various real estate objects;
- most often a contract is made when buying real estate in the secondary market;
- the object of insurance can be not only an apartment and a house, but also land or non-residential premises represented by production or office premises.
As soon as the contract is signed, the policy is paid based on the established tariff. After that, the citizen transfers a copy of the official contract to the bank, where the mortgage is issued. Even if a mortgage is issued at 6 percent with state support, title insurance may be required.
What documents are needed?
To sign an agreement with a selected insurance company, a citizen will have to prepare a certain set of documents. These include the following papers:
- passport of the direct buyer, and if the object is purchased by spouses, then the passports of the husband and wife are required;
- certificate of registration of real estate received from the seller;
- documents proving ownership of the apartment or house;
- technical passport of the facility;
- extract from the house book containing information about who is registered in the apartment.
In addition, other papers may be required, therefore their exact quantity must be specified directly with the employees of the selected insurance company.
When does the policy not work?
Before signing the contract, it is important to understand what title insurance for mortgages is in order to know what potential risks are covered by the insurance company. There are certain situations in which such insurance will not work, so it is advisable that the agreement be examined by an experienced lawyer.
In some situations, compensation is not awarded even if the client loses ownership of the apartment. This is possible in the following cases:
- the onset of force majeure, for example, war or a natural incident;
- a citizen donated the property to another person;
- the owner of the apartment sold the property to another person;
- housing was destroyed by fire, explosion or other incidents;
- the owner has performed an illegal redevelopment of real estate;
- housing was confiscated for debt;
- misuse of the property, for example, the use of an apartment for commercial activities.
In the above situations, the insurance company may refuse to pay compensation, even if the transaction for the sale of real estate has been challenged in court.
Important aspects of purchasing a policy
Most often, such a policy is bought by people who purchase housing on a mortgage. Title real estate insurance allows you to protect yourself from unscrupulous sellers, but its design has the following features:
- upon the occurrence of an insured event, the amount prescribed in the contract with the insurance company is reimbursed, and not the amount indicated in the contract of sale;
- many banks issuing mortgages, as a prerequisite for customers, require the purchase of title insurance;
- usually such a policy is not sold separately, therefore it is included in other mortgage insurance programs;
- most often, an agreement with an insurance company is concluded prior to the direct transfer of ownership of the apartment;
- Compensation is paid only if the court makes the decision specified in the contract.
Before signing the agreement, it is important to carefully study its contents so that different conditions and fees are not a surprise to the buyer of real estate. If, for various reasons, the insurance company refuses to pay compensation, you will have to file a lawsuit.
Conclusion
Each person who plans to purchase real estate at the expense of borrowed funds must understand what title insurance for a mortgage is, what its value is, and what insurance cases are included in the contract.
Such a policy provides insurance of risks associated with the loss of ownership of housing for various reasons. But at the same time, there are situations when it does not work, so it is important to carefully study the conditions of cooperation with the insurance company.