Benefits of Title Insurance for VA Loans

Having a “clear title” is a vital component of the homebuying process for Veterans and active military personnel. A clear title simply means that the house being purchased is free from any legal defects such as liens, encumbrances or legal judgments.

Title insurance is a safeguard that homebuyers can purchase to protect themselves from these potential legal issues. With title insurance, the buyer is not accountable for any unforeseen legal problems with the property's title, providing peace of mind during the homebuying process.

VA Lender's Title Insurance

Lender title insurance is not required and only covers the lender's interest in the property against potential claims or legal disputes. However, different VA lenders may specifically require this type of insurance to receive a loan, so make sure to discuss it with your lender. It is typically paid for by the borrower as part of their closing costs and doesn’t protect the borrower from title-related issues.

VA Owner's Title Insurance

Owner title insurance is optional and covers the homeowner's financial interest in the property. This policy protects the owner from potential title disputes or claims that could arise after the purchase of the property. Buyers pay a one-time fee for this type of title insurance, which protects them and will require the title insurer to pay any costs and claims associated with title issues. Keep in mind that prices for owner’s title insurance may vary and can be negotiable.

While VA title insurance is not a necessity, it greatly reduces the potential risks associated with property ownership. It provides an essential layer of financial protection, ensuring a secure and worry-free property investment for both the borrower and the lender.

What Title Insurance Covers

Title insurance provides a safety net against potential legal issues that may arise from defects or issues tied to the title of a property. These issues are typically uncovered during a title search, an integral part of the property buying process.

A title search is a rigorous examination of public records to verify legal ownership of a property and to uncover any claims or liens against it. This review also helps identify any issues or defects that could affect the title's transfer from the seller to the buyer.

Title defects refer to any legal right to or claim against a property that could affect the ownership or use of the property. Examples of these include unpaid taxes, unsatisfied mortgages, judgment liens, easements, or restrictions limiting the use of the property.

Below are some common issues covered by title insurance:

• Liens for unpaid taxes: If there are any outstanding taxes from previous owners, title insurance can cover these unpaid debts.
• Fraud or forgery: If the property was sold by someone who did not legally own it, or if the deed was signed under duress or false pretenses, title insurance will provide protection.
• Unsatisfied mortgages: If a previous owner failed to pay off their mortgage and the debt is still tied to the property, the policy will cover this issue.
• Judgment liens: These occur when a court awards a creditor an interest in the debtor's property due to unpaid debts. If such liens exist, the title insurance will provide coverage.
• Easements: These are the rights to use someone else's land for a specific purpose. If any undisclosed easements affect your property, the title insurance policy would cover you.
• Restrictions and covenants: These are binding terms or conditions that dictate what you can or cannot do with your property. If the previous owner violated any of these, title insurance would provide coverage.

By covering these various defects and issues, title insurance ensures that the property buyer doesn't inherit any existing debts or legal complications from previous owners. Every situation and lender may vary, so make sure to speak to your lender about their title insurance policies.

Potential Risks of Having No Title Insurance

Choosing to forgo title insurance when purchasing a property can introduce several potential risks. While it's not a requirement for VA loans, title insurance provides a safety net against hidden complications, ranging from unpaid taxes to potential ownership disputes. Without this coverage, you, as a property owner, could be held liable for a variety of costs and legal issues that may arise.

Here are some of the potential risks of not having title insurance on a VA loan:

• Unpaid property taxes from a prior owner: If there are any outstanding property taxes from previous owners, you could be held responsible for paying those debts.
• Unrecorded liens on the property: If there are any unrecorded liens, such as a mechanic's lien or a judgment lien, you could be financially liable for these undisclosed debts.
• Property claims from former co-owners or their relatives: Claims to ownership can come from past co-owners, family members of past owners, or even undisclosed spouses. Without title insurance, the costs associated with resolving these issues would fall on you.
• Foreclosure issues from previous owners: If the property was foreclosed upon in the past, there might be lingering legal issues or claims that could affect your ownership.
• Undocumented or unknown disputes relating to the home: This can include disputes over property boundaries with neighbors, issues with previous easements or undisclosed restrictions on the property. These issues could lead to legal disputes or additional costs.

Without title insurance, dealing with any of these potential problems could lead to a substantial financial burden or even loss of property. Although the VA does not require title insurance, it can increase lender confidence and create a smoother transaction since you and your property are protected.

Reach out to a VA lender today to see how to protect your home with title insurance!