Most people know how important it is to have title insurance when buying a new home. The buyer needs to have protection against defects or problems because of liens, encumbrances, or defects in the title when there is a transfer of property ownership. But, what if the home being sold is new construction since there isn’t an actual previous home that has a title? Many prospective homeowners wrongly assume that newly built homes are free of title defects.
When a home is sold, the original seller transfers the title deed to the buyer. The hope is that the seller has had full possession of the title without any liens on the property and has the right to sell it. A title company will research public records looking for problems that might be associated with the property – filing errors, forgeries, undisclosed heirs – and once searched will provide a policy to protect the buyer from any issues that may be uncovered later.
All of the above makes sense if a home that is being bought has been owned by someone else. What happens when a buyer is purchasing the land to build a new house on? Why would title insurance be needed? Because the land was owned and may have been broken up from an even larger parcel that has undiscovered claims. The title to that land may come into a dispute in years to come. Most land is not completely claim-free, thus there is history. Furthermore, the builder may have bills unpaid to subcontractors and suppliers resulting in a lien on the new home.
A title policy is a best and safest way in protecting the buyer of the land where the new home is being built. There will be no question of ownership in the future, especially if the home in the new subdivision was not properly subdivided.
The Bottom Line: The lender will want to be sure that there is a clear title on the property. Someone owned the land on which the new home is being built before the buyer and the title to that land may at some point come into dispute. And, while there is no question the owners could experience disruption during a dispute, title insurance will ease the pain by covering the bills during the process.