Important Information about Title Insurance

When you purchase a home, you will purchase several types of insurance coverage to protect your home and personal property.  Homeowner’s insurance protects against loss from fire, theft, or wind damage and personal liability.  Flood insurance protects against rising water.  And a unique coverage known as title insurance protects against hidden title hazards that may threaten your financial investment in your home.

Title insurance is not as well understood as other types of home insurance, but it is just as important.  You see, when purchasing a home, instead of purchasing the actual building or land, you are actually purchasing the title to the property – the right to occupy and use the space.  That title may be limited by rights and claims asserted by others, which may affect your use and enjoyment of the property and even bring financial loss. 

The record of ownership of a property is set down in writing in the real property records at the county courthouse and is referred to as the “chain of title.”  The courthouse examination done by your closing attorney is intended to fully report all “material objections” to the title, so they can be corrected before closing. Your attorney will search for:

• Deeds, wills and trusts that contain improper wording or incorrect names;
• Outstanding mortgages and judgments;
• A lien against he property because the seller has not paid his taxes;
• Easements that allow construction of a road or utility line;
• Pending legal action against the property that could affect a buyer;
• Incorrect notary acknowledgements.

However, even the most careful preventive work cannot locate all title objections. Sometimes, documents don’t clearly transfer title. Hidden hazards can emerge after closing, resulting in unpleasant and costly surprises.  Some examples of hidden hazards include:   

• A forged signature on some deed in the chain of title resulting in no transfer of ownership to you;
• An unknown heir of a previous owner who is claiming ownership of the property;
• Instruments executed under an expired or a fabricated power of attorney;
• Mistakes in the public record;
• A legitimate lien filed during “the gap,” the time after filing before the public record is updated.

  Title insurance protects against these types of title hazards.  The title insurer will pay for defending against an attack on title as insured, and will either perfect (clear) the title or pay valid claims.

There are two types of title insurance: Mortgagee (lender) protection and Owner (buyer) protection. Most lenders require mortgagee title insurance as security for their loan secured by the real estate.  You will pay for that at the closing as part of the closing costs of your loan.  Owner’s title insurance, which is also paid at closing, is optional but without it you are taking a big risk. Owner’s title insurance has a one-time charge which amounts to $1.00 to $2.50 per $1,000 borrowed. Claims against title are rare. But when a problem of ownership does occur, it tends to be expensive.

Conclusion? Buy Owner title insurance protection at closing.