Today we will consider a rather interesting issue - title real estate insurance. What is it and what is it for?
First of all, this topic may be of interest to those people who plan to invest available funds in real estate. If in the near future you are planning to purchase an apartment, house or a summer cottage - title insurance can save you from many troubles.
The fact is that when you buy a house, the ownership of which has repeatedly changed its owner, you put yourself in a dangerous position. Your right to acquired property may at any time be challenged by one of the previous owners. There may be many reasons for this. Title ownership insurance is designed to protect you from such risks. Let's understand in more detail.
What is title insurance
So, what is meant by the term "title real estate insurance"? What it is? This is the name of an insurance product that provides protection against the risk of losing the right to property if the transaction is challenged and declared invalid. It is interesting that such a policy protects a person not from what may happen in the future, but from the possible consequences of what has already happened. At the time of drawing up the title insurance contract, such events are not known to any of the parties and do not manifest themselves in any way.
The name of the described policy comes from the phrase “legal title”, which means a document confirming the exclusive right of ownership of a particular property.
To date, such contracts are most often concluded simultaneously with a contract for real estate insurance. Such property quite often acts as an object of long legal chains. The same apartment can be sold several times, become the object of gift, alienation by any means, inheritance and hand-to-hand transfer, based on a decision of the judiciary. If legal inaccuracies were made at any of the listed stages, then not only this particular transaction, but all subsequent ones may be challenged and invalidated. As a result of such actions, the current homeowner is deprived of rights to the acquired property. Title insurance, reviews of which are the most positive, just protects the owner from such a risk.
Why is it necessary
The main result that a person receives from this type of service is compensation for losses incurred in case of loss of ownership of the acquired apartment, house or cottage. In addition, the contract may provide for other compensation related to the reimbursement of additional losses associated with the insurance event.
In this case, an insured event is recognized as a documented fact that you have suffered real damage associated with the loss (in whole or in part) of the right to own housing. At the same time, events arose regardless of your will and on the basis of a court decision that has already entered into force.
What title insurance protects against
The acquisition of any property, especially housing, requires a balanced and responsible approach. It is important to consider every little thing, all possible troubles. According to official statistics, just over one percent of transactions concluded in real estate are recognized by the court as invalid. It seems to be a little, but this is if the matter has not personally affected you.
Reasons for contesting may vary. For example, during privatization, the interests of the child were not taken into account. This is a reason to challenge the deal. Moreover, this can be done even after two to three years.
Since it is housing that is most often affected by fraudulent schemes, title insurance when buying an apartment will guarantee that your blood don’t move into the pockets of “black” realtors.
Of course, before the conclusion of the transaction, it is worth checking carefully the entire background of the acquired housing. But this can be very problematic. The fact is that archives most often refuse to provide data on all transactions previously concluded with property. They motivate their refusal by the fact that information about the last owner is supposedly enough. In practice, this is far from the case. A much earlier owner may be declared, and then the rights of all subsequent owners, no matter how many, will be recognized by the court as invalid. That is why property title insurance makes the purchase and sale process much safer.
When a deal can be challenged and invalidated
There are several situations in which the conclusion of a transaction may be invalidated:
- at registration fake documents were provided;
- the acquired property has been seized due to outstanding debts of one of the previous owners;
- the apartment was not purchased from the true owner;
- the seller kept silent about the disagreement of his "second half" on the transaction;
- the heirs of one of the former owners claim to purchased housing.
In some other cases, apartment title insurance can also protect the new owner from losses as a result of loss or limitation of ownership:
- At the time of the transaction, the seller was a minor, suffered from a mental disorder or was limited in legal capacity by the courts.
- Documents were compiled in violation of applicable law.
- The rights of the trustee have lost force in cases where the transaction was not concluded by the seller personally.
- The deal was concluded fraudulently or under the influence of violence or threats.
How much is it
So, you have decided to take out title insurance. How much does such a policy cost, and what does its cost depend on? The amount of insurance is accepted by agreement of the parties. Most often, it corresponds to one of the following parameters:
- market (actual) value of housing at the time of signing the contract;
- the cost of acquiring such housing (replacement cost);
- replacement cost, that is, the amount needed to build the same facility;
- the amount specified in the loan agreement (if any);
- the cost of housing under the contract in accordance with which the right of ownership was obtained.
What affects the size of the insurance tariff
The payment that you have to make as an insurance also depends on several parameters:
- amount of the insured amount;
- the number of risks considered in the contract;
- the history of the house or apartment (the number of previous owners);
- franchise availability and size;
- features of the regulatory framework that existed at the time of the conclusion of previous transactions or privatization;
- the term of the policy.
Depending on all these factors, the title insurance tariff can be calculated in the amount of 0.1 to 5% of the insurance amount. It all depends on the terms of the contract.
Rules for registration
This type of insurance is relevant not only in the case of acquiring housing in the secondary market. Title real estate insurance will also protect you when buying a home in a new building. For the proper execution of the contract you need to prepare:
- A document confirming the ownership of the object (purchase, gift, inheritance, etc.).
- Certificate of state registration.
- Registration certificate of housing.
- Extract from the house book.
- The plan of the house or land (if we are talking about insurance of these objects).
What to do when an insured event occurs
If there is a situation when the title insurance is still useful, you should immediately notify your IC. You need to personally arrive there and as soon as possible provide the following documents:
- a civil passport or other document proving your identity;
- current title insurance contract;
- the original and a copy of the court decision establishing the fact of alienation of the acquired property.
After a thorough examination of the documents, the insurance company is obliged to pay you the full amount under the contract. In addition, if an item was added to the insurance to compensate for other expenses, for example, legal costs, this money will also be refunded to you.
Insurance Features
Unfortunately, the title insurance contract is not very popular in our country. Moreover, many people are not even aware of the existence of such an opportunity. Therefore, when concluding an insurance contract, mistakes are often made, the presence of which leads to serious consequences when an insured event occurs.
When signing the contract, you should pay attention to the following points:
- You should not sign an agreement in which there is an exhaustive list of insurance risks. It is very likely that some situation will simply not be taken into account, which will subsequently lead to a refusal of payment. It is best if the contract states that the loss of ownership is subject to compensation, regardless of the reason.
- Some insurance companies offer a policy which states that the reimbursement is relied only on transactions completed with your direct participation. It may also negatively affect receipt of payment.
- Quite often, when concluding a real estate transaction, a much smaller amount is prescribed in the contract than it actually is. This is done in order to minimize the amount of tax. Therefore, with title insurance, it is very important to enter into the contract exactly the real amount of the transaction, and not the one that is prescribed in the contract of sale.
The ins and outs of mortgage title insurance
Quite often, along with mortgage registration, banks oblige the client to take out life and health insurance . This is not surprising, because the bank is interested in receiving its money in any case. Nobody usually insists on title insurance, because it is not the bank that is interested in it, but you yourself. Indeed, even if the purchase is declared invalid, the bank will have to return the money to you.
By the way, title insurance for a mortgage is very beneficial to the buyer. After all, before concluding the contract, the insurance agent must carefully check all the nuances of the transaction and, if necessary, provide the client with the help of a qualified lawyer. In general, do everything possible to avoid the occurrence of an insured event.
When insuring a title on a mortgage, you need to remember that an amount not less than what you have to pay in the end must be entered into the contract. And the insurance contract itself should be concluded for the same period.
When does insurance not help?
Title insurance is not an absolute panacea. Unfortunately, there are risks at which it does not work. If after buying a home there is an encumbrance that is not related to the loss of property, the title policy will not help you. What does it mean?
Here is a small example. You bought an apartment, and three years later it turned out that another person was registered in it (without ownership). At the time of the transaction, he was absent (for example, he was in prison or was earning money abroad), and now he has returned. If he has nowhere else to live, then in accordance with the fortieth article of the Constitution of the Russian Federation, he will have the right to live in your house. In this context, the situation will not be recognized as an insured event, since no one claims to the right of ownership at all.
So do not rely on title insurance, as a panacea for all ills. In order to avoid unpleasant situations, you need to make maximum efforts yourself to protect yourself from all risks.