Some of the most frequently asked questions we hear include:
“What is title insurance?”
“Do I have to have it?”
“Why should I get it?”
In a nutshell, an owner’s policy of title insurance protects you from losses due to title defects covered by the policy and the legal fees and costs you would otherwise spend defending your title. Whereas hazard insurance looks forward (i.e. fires, wind damage), title insurance looks backwards, protecting you from defects in the chain of title that already existed but simply were not discovered prior to the recording of your deed. For example, subject to exceptions specific to individual properties and certain common-sense exclusions found in every policy, an owner’s policy protects the insured from losses due to defects in title caused by:
While title searches examine the chain of title, a search alone does not provide coverage beyond the cost of the search. Further, examiners can make mistakes, and some defects simply cannot be seen on paper. Imagine that you are enjoying your new home and receive a notice that someone is challenging your title because a prior deed was executed pursuant to either a forged power of attorney or a power of attorney obtained from an owner who was mentally incompetent. Perhaps you receive a notice of foreclosure because a prior owner in the chain had a home equity line of credit that was paid off when that owner sold, but the line of credit was never closed and was run up again. As long the prior owner made payments, this went undetected, but now that those payments have stopped, his bank wants your home. These are just two real-life situations title insurance companies routinely encounter. After an insured submits a claim and coverage is confirmed, the title insurance company steps in to defend title (if valid defenses can be made) and if unsuccessful, will pursuant to the terms and conditions of the policy either attempt to settle with the person or entity challenging title or make a loss payment to the insured.
An owner’s policy of title insurance is not legally required. You do not have to purchase it, and your seller does not have to purchase it for you. However, with payment due only once for a policy that lasts as long as you or your heirs own the property, at around .5% of the purchase price, the cost is minimal compared to the risk and is a wise financial move to protect your investment.