Purchasing land can raise questions about its value, what it can legally be used for, and how to protect it. This type of property can be protected by one form of insurance: title insurance, which differs significantly from other types of protection. The following is a closer look at title insurance and how it applies to vacant land. What is the need for title insurance when buying land?
The purchase of any type of property, whether it is a home, an area of land, or any other business venture, always carries some level of risk associated with the previous owner’s mistakes. You may have to deal with property taxes that were not paid by the previous owner. A claim might also arise from encumbrances, such as contractors who claim they were not paid for work done on the house before you bought it (mechanics liens), or a forged will. Because title insurance covers claims from the past more than future claims, it is different from other types of insurance.
The real estate experts estimate that title insurance claims represent between 4% and 6% of the total revenue collected by title companies. Title insurance is based upon the concept of “loss prevention”: the idea that time and money are spent to prevent title problems in the first place.
It’s important to take care when purchasing land as it’s like purchasing a new house. As well as performing routine maintenance, it’s also important to protect it from anyone or anything that may harm it or claim ownership of it.
A resounding yes is the answer to this question. No matter what sits on your land, you should definitely purchase a title insurance policy. Furthermore, remember that a deed merely grants new ownership of a property and may not necessarily terminate the rights of previous owners. It is possible for there to still be unexpected problems with taxes, property lines, or legal records, even if your site is completely empty. In order to handle these types of problems, you can consult with a title insurance company.
Before you buy land, it is also important to know what the zoning is. In addition to finding out the land’s zoning designation (for example, “residential” or “commercial”), it is highly recommended that you find out what restrictions may apply to it. You should also be aware of easements that may limit your land’s use.
You need owner’s title insurance to protect your land, which is significantly different from lender’s title insurance. Typically, the latter type of policy protects lenders from prior lien rights that may arise regarding your property’s title, while the former protects you, the property owner. A homeowner’s title insurance policy provides coverage for your property and is typically paid at closing. It provides coverage for the life of your investment and can be purchased anytime.