What Is Title Insurance?
A Title Insurance Policy provides peace of mind by protecting the purchaser of
real estate from loss associated with undiscovered defects in the title of the property.
Title insurance is a one-time premium paid to a title company, which guarantees
ownership of a particular piece of property and ensures that no one else has a claim
to that property.
Why you need title insurance
When you purchase a home, you need to be sure that there are no problems with its title, and that the seller really owns the property. Problems with the title can limit your use and enjoyment of the property, and could also result in a significant financial loss.
The Title Search
After your sales contract has been accepted, a title professional will search the public records and identify any complications with the home's title. This search typically involves a review of land records going back many years. More than one-third of all title searches reveal a title problem that can easily be dealt with by title professionals before going to closing. For instance, a previous owner may have had minor construction done on the property, but never fully paid the contractor. Or the previous owner may have failed to pay local or state taxes (See below for some other common title problems). Title professionals seek to resolve problems like these before you go to closing.
The Owner's Policy
Sometimes title problems arise that weren't initially discovered in the public records, or were inadvertently missed in the title search process. It is recommended that you obtain an Owner's Policy of Title Insurance to protect yourself from unforeseen problems like these.
Owner's Title Insurance, called an Owner's Policy, is usually issued in the amount of the real estate purchase. It is purchased for a one-time fee at closing and lasts for as long as you or your heirs have an interest in the property. Only an Owner's Policy fully protects the buyer, should a covered title problem arise. Possible hidden title problems can include:
- Errors or omissions in deeds
- Mistakes in examining records
- Undisclosed heirs
An Owner's Policy provides assurance that your title company will stand behind you-monetarily and with legal defense—if a covered title problem arises after you buy your home. The bottom line is that your title company will be there to help pay valid claims and cover the costs of defending an attack on your title for as long as you or your heirs own the property. Receiving an Owner's Policy isn't always an automatic part of the closing process. In different parts of the country, either the buyer or the seller may be responsible for providing owner's coverage, or it may not be required. Be sure you request an Owner's Policy and ask how it is paid for in the area in which you live.