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What is Title Insurance and Do You Need It?

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  • What is Title Insurance and Do You Need It?

    A home's title is as important as the physical building and land it occupies. A title insurance policy offers protection against any unforeseen ownership claims that may arise after you buy a new home. It keeps your money and investment safe, insuring that you are protected if there is a question of ownership.

    Although it sounds unlikely, the unfortunate truth is that ownership questions are not that uncommon. Whenever you buy a home, your real estate agent or title company will run a title examination or title search to verify the ownership of the property that has just been bought. This examination and search consists of collecting and examining any and all public records that involve the title to the property in question. These records include wills, liens, deeds, and trusts and can prove that the property has correctly and legally passed from owner to owner. The examination also confirms that all judgments and mortgages concerning the property have been completely paid.

    Wonderfully, most often the title search will return with a clear report; however, occasionally a slight problem will appear. Sometimes called a 'defect' or 'cloud,' these problems are things like missing signatures or easements and other right-of-way issues. These should be settled and reviewed before any purchase is considered final.

    Less often, legal battles can ensue from ownership questions that arise from the title search. You risk paying expensive legal fees and possibly losing the property that you thought you just paid for; thus the existence of title insurance. Title insurance pays your legal fees, and if you lose the property, reimburses you up to the policy limit. Just like other types of insurance, though, title insurance policies can contain certain exclusions and riders. It is important to make sure you know what type of policy you have, what is covered and what is not covered. For example, some title companies offer only limited coverage of easement, lien, or mineral rights problems; sometimes they do not offer this coverage at all. Consider what coverage you need before you buy a title insurance policy.

    Do you need title insurance? Most mortgage companies require at least some type of title insurance. They have quite an interest in the property and do not want to lose their investment. If you are paying for your new home outright, however, you can decide whether or not title insurance is right for you. Usually, the home buyer is responsible for purchase of title insurance, if any, but as a condition of the sale the cost may be transferred to the seller. Ultimately, the decision is yours.

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