Title insurance is something you pay for at closing. You must buy it for your lender if you have a mortgage, and you have the option to buy an owner's policy for yourself as well. Is it worth it or is it just another gimmick to suck away your money?
I am currently working with sellers who are glad they have it. In the course of searching title history in preparing for transfer to the new owner it was discovered that a previous owner's mortgage was never recorded as satisfied. The current sellers have title insurance so it is a non-issue… however, without it they would have been responsible to prove that mortgage was paid off before closing… could have been a difficult task!
What is title insurance?
When you buy a home or piece of property it is legally required that the history of the property be searched prior to closing for any any existing rights or claims that may threaten your title and possession of the property.
Although this search can also be performed by an attorney who then gives a title opinion, it is most often made by a title insurance company because lenders require that a title insurance lender's policy be purchased for them as part of their mortgage lending requirements. An attorney's opinion provides no guarantee, but a lender's policy insures the lender's interest in case someone claims title to your property after closing. This policy protects the lender's interest in the property but it does not protect you.
You have the option of also purchasing an owner's policy for your own protection. Because the title search has already been done for the lender's policy when you have a mortgage, the additional cost for an owner's policy is considerably less.
Unlike other forms of insurance, you pay only one premium at closing that protects you and your heirs for as long as you own the property. There are no annual payments to keep your policy in force.
What does it protect against?
Title insurance is issued after a careful examination of public records, but even the most thorough search cannot be absolutely sure that no title hazards are present. Here are a few of the most common hidden risks that your insurance covers…
- False impersonation of the true owner of the property
- Forged deed, releases or wills, use of invalid or expired power of attorney
- Undisclosed or missing heirs, mistakes in recording legal documents
- Misinterpretations of wills, deeds by persons of unsound mind
- Deeds by minors
- Deeds by persons supposedly single, but in fact married
- Liens for unpaid estate, inheritance, income or gift taxes
- Unsatisfied mortgages
What will it do for me?
- Pay legal fees for defending against any claims on the property
- Assume responsibility for and bear the cost of settling any claims if necessary
Unlike most insurance, title insurance has a one-time fee that protects you as long as you own the property so there are no annual fees as with most types of insurance. You may forget you have it, and need for it likely won't come up until you are selling your property. Issues found in the title search at time of sale usually come as a complete surprise to sellers. The most common issue that comes up is unsatisfied mortgages… which usually means the mortgage was paid off but the payoff was not recorded at all or recorded improperly. Trying to track down and clear this can be a real pain, especially right before closing… which could cause delays. I see this happen often enough that I would never buy a home without title insurance… in my opinion it is a few hundred dollars well spent!