Title Insurance Facts

When you purchase a home, your mortgage company will require you to purchase both title insurance and homeowners insurance. Homeowners insurance protects the physical structure once title transfers into the name of the new owner. Title insurance provides protection from disputes regarding ownership that might have taken place before the title is transferred. Many home buyers balk at paying for title insurance, because they don’t realize what it covers and how important it really is.

What is Title Insurance?

Title insurance, in the most simple terms possible, is an insurance policy that covers the title of your home. The title is very important, as it represents ownership interest in the property. When your home is going through the escrow process, the title company will conduct research to make sure that there are no outstanding liens on the property and to verify that the person selling the property to you does in fact have the legal right to transfer ownership to you. The title company will attest that there are no known liens at the time of closing. Title insurance will protect you from liens or other title problems that might become known at some point in the future.

Why is Title Insurance Important?

No homeowner should be without title insurance, particularly when purchasing a home or property that has changed hands at any point in the past. Even though the title company is required to conduct thorough title research prior to the time of closing, it’s always possible that some pre-existing problems might not be discovered at this time. Title insurance keeps you from having to worry about issues related to the title of your home that took place before you became the owner.

It is not uncommon for problems related to real estate titles to crop up even years after a sales transaction has taken place. Title disputes can arise over property taxes, contractor liens, validity of signatures on past sales transactions, and other such issues. Sometimes heirs of past owners will come forward, claiming that the individual who sold the home did not have legal right to do so. Without title insurance, these types of problems can become legal and financial nightmares for homeowners. Title insurance protects homeowners from loss and litigation fees arising from such situations.

Is Title Insurance Mandatory?

If you are financing your home, your lender is very likely to require you to purchase a title insurance policy. If you are paying cash for your home, there is no legal requirement to purchase title insurance. However, it is not wise to risk having to deal with title problems just to avoid having to purchase a title insurance policy. Dealing with such problems is very costly and time-consuming, and can result in disastrous consequences for uninsured homeowners.

Purchasing a title insurance policy is very affordable. You do not have to make periodic payments on title insurance. It is sold as a single policy that you pay for at the time of closing, and protects your ownership rights in your home the entire time you hold title to your property. It is certainly worth a small, one-time fee to know that you will never have to worry about dealing with any type of dispute that may arise regarding the previous ownership of your home.

Title Insurance Limitations

It is important to realize that title insurance does not protect homeowners from liens filed against their property once they take ownership. Once you own your property, if your actions lead to contractor or tax liens being filed against your home, title insurance does not keep you from having to fulfill those obligations. The protections of title insurance only protect homeowners from financial obligations and ownership disputes related to the actions of previous owners.

Making a Decision About Title Insurance

Purchasing a home is one of the biggest investments most people will ever make. It only makes sense to take every possible step to protect your ownership interest in such a large purchase. While it is possible that there will never be a problem with your home’s title, it is also possible that serious problems might arise.
Since title disputes are related to the actions of previous owners, you have no way of mitigating the risk other than to protect yourself by purchasing title insurance at the time of closing. When purchasing property, it is always advisable to purchase a title insurance policy. The small cost of title insurance is definitely worth the peace of mind that comes with knowing that you will never have to deal with ownership disputes regarding your home.

© Allison Van Wig