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  • Writer's pictureCatherine Micallef

Understanding Title Insurance

Do you need it when purchasing a property?


Buying a property is a significant investment, and it's crucial to protect yourself from potential risks that may arise in the future. You may have heard of title insurance and wondered whether it is necessary to obtain. While title insurance is more commonly associated with real estate transactions in the United States, it is also a consideration for homebuyers in Australia.

In this article, we'll explore what title insurance is, why it might be important, and whether you should consider getting it when purchasing property in Victoria.


What is Title Insurance?


Title insurance is a form of indemnity insurance that protects homeowners and lenders against financial loss due to defects in a property's title. The title is the legal document that establishes ownership of a property, and it is crucial for the smooth transfer of ownership during a real estate transaction. Title insurance can provide coverage for various issues related to the title, such as:


Protecting Your Investment: Title insurance can safeguard your investment by covering the costs associated with defending your ownership rights. If a legal challenge arises over your property's title, the insurance can help cover legal fees and related expenses.


Defects in Title: Title defects can include errors in public records, undisclosed heirs claiming ownership, fraud, or forgery. Title insurance provides coverage for these issues, which could potentially threaten your ownership and investment.


Peace of Mind: Knowing that you have title insurance can offer peace of mind during the property purchase process. It allows you to proceed with confidence, knowing that you are financially protected in case of unforeseen title issues.


While variations exist among insurance policies, a standard policy typically provides protection against a range of risks. These may include:

  • Unlawful building works and structures

  • Mortgage or title fraud occurring post-settlement

  • Incorrect signature on a document

  • Forgery, fraud, duress, incompetency, incapacity, or impersonation before settlement

  • Defective registration of a document

  • Lack of rights of access or use of services

  • Violation of covenants

  • Survey coverage addressing boundary issues

  • Encroachment onto or by the insured property

  • Lack of zoning certificates

  • Title being vested in someone other than the insured

It's crucial to be aware that certain risks are typically excluded from title insurance coverage, including:

  • Information that is already known to you at the settlement date of your property purchase (for instance, if it is disclosed in the Contract for Sale).

  • Structural deterioration or pest infestation in buildings; therefore, Title Insurance does not offer protection for issues identified in a pre-purchase Pest and Building Inspection report.

  • Buildings that do not meet proper building standards.

  • Instances of environmental contamination.

Some policies will also exclude cover in relation to risks that could have been known to a buyer prior to purchase if proper and diligent investigations were undertaken.


The Cost of Title Insurance


The cost of title insurance varies depending on the insurer, the value of the property, and the level of coverage required. Generally, it is a one-time premium paid at the time of settlement. While it adds an additional upfront cost to the home buying process, some argue that the potential benefits outweigh the expense, especially if a title issue arises.


Conclusion


In Victoria, title insurance is not a mandatory requirement for property transactions, and many buyers proceed without it. The decision to get title insurance ultimately depends on your individual circumstances, risk tolerance, and the specific details of the property transaction.


Before making a decision, it's advisable to consult with a qualified conveyancer or legal professional who can provide guidance based on the unique aspects of your property purchase. They can help you assess the potential risks and determine whether title insurance is a sensible choice for your specific situation.


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