What is Title Insurance?

Title insurance policies protect lenders and homebuyers from zombie property claims, unpaid taxes and disputes from the past that could cause big problems in the here and now.

By Mary Connors

Insurance is one thing we all spend money on every month and hope we never have to use. Home, auto and life insurance policies protect us from future risks we happily pay to defend against. 

For many, title insurance usually isn’t on that easy-buy list. 

In fact, until they purchase a home and discover that they are required to buy a policy in order to get a loan, many folks have little or no idea what it is.

Title insurance, an important protection for lenders and homebuyers, looks backward. It safeguards homeowners from bad stuff that may have happened years ago, or maybe just last week. 

There is a long list of title-related problems that can be costly or even lead to the loss of the property if a buyer is not covered with title insurance. As with most insurance, you hope never to need it.

Title insurance is a safeguard against vulnerabilities caused by unknown issues and pre-existing defects associated with the deed, the document that shows proof of ownership – title – to your property.

The chain of property titles and owners for some houses can stretch back years – a lot of room for errors and finagling. Title insurance shields a prospective buyer or the buyer’s mortgage lender from lawsuits and liabilities related to:

• unpaid real estate taxes;

• unresolved liens against the property, including foreclosures and unreleased loans; and

• conflicting wills related to the property.

Most lenders require you to purchase a lender’s title insurance policy. This insurance covers the amount loaned to you, protecting the lender’s balance on the outstanding loan. 

You may purchase a separate owner’s title insurance policy to help protect your financial interest in the home.

Title insurance is paid when a property is purchased; the onetime premium is usually included in closing costs. A homebuyer receives an itemized list of title fees on the Loan Estimate and Closing Disclosure forms, and again at closing.  

According to the Consumer Financial Protection Bureau, you can usually shop for your title insurance provider separately from your mortgage. If you choose to buy an owner’s policy, the cost will probably be lower if you use the same provider for both the lender’s and owner’s policies.

 Among the benefits:

• The title insurance company will thoroughly research public records to determine and document lawful ownership of your property. 

• If any liens, claims, encumbrances or other concerns are discovered, the insurer informs you immediately so that you can take action before closing.

• If a problem surfaces later, after closing, the title insurer is obligated to cover any losses and the owner’s legal expenses to defend the title to the property. 

• Title insurance protection doesn’t end after the closing. An owner’s policy continues until you or your heirs no longer have an ownership interest in the property.

Shop for the best rate. Your mortgage lender may suggest a specific title insurance policy, but make calls to find the best price for the amount of insurance you require. Check out the business at the Better Business Bureau, bbb.org.

The American Land Title Association, a national association of title insurance companies, maintains a list of its members online at homeclosing101.org.

A Homebuyer’s Timeline

This is the biggest purchase of your life. Get it right! Do your homework. Work with trusted professionals. And take it one step at a time. Here’s a look at the journey ahead.

Source: Consumer Financial Protection Bureau: www.consumerfinance.gov/owning-a-home