How does a new-construction home affect the title search process?
Building a brand new home on an empty lot gives you a great deal of flexibility and freedom as a homeowner. There is no prior house to renovate or add onto; you basically have a blank canvas to make all your own. So if you are the first one to live in your home, can you skip the title insurance?
Why you do need title insurance for your new-construction home
Title insurance helps protect you and your lender from certain risks that could be associated with the property. Since this typically applies to issues that are tied to a house, it may seem like there is no need for title insurance when there is no pre-existing home.
However, even without a house, the empty property has its own history. Prior to construction, that land likely changed hands multiple times, so it has the potential for ownership issues just like an existing home. A title search will look for snags like liens to determine the status of the property’s title.
Potential issue: Mechanic's lien
Also referred to as a construction lien, a mechanic's lien is a possible obstacle for a newly constructed home. There is currently no uniform law that governs these liens across the nation, but each state will have some form of regulation for it.
A mechanics' lien is a way for construction workers, subcontractors and suppliers to ensure they are paid for their work when building a home. If a builder fails to pay these workers, they can place a lien on your property. The property then becomes a security interest, meaning it secures the payment of the debt owed.
Remember, even new homes have a history. Due diligence, like the search and exam First American performs prior to issuing a title insurance policy, can go a long way to protecting your investment.