Why do you need title insurance? It’s the second most asked question in our office. The most asked question is – When do we get the keys? That was discussed in an earlier post here at TPREG.com.
Let’s start with the official definition for title insurance. From www.ctic.com, we have the following:
Title Insurance ”“ Assurance of indemnification for loss occasioned by defects in the title to real property or to an interest therein which is insured.
Huh? Clear as mud, right?
Let’s get away from the legalese and talk in plain English. Title insurance is an insurance policy. It is different from other forms of insurance. Automobile insurance, for example, protects you from some “future” event, be it a fender bender or theft of the car. Title Insurance also protects you from some future event, like a claim or loss due to a title issue. The difference is that these issues were caused by a past event. The event causing the claim occurred prior to your purchase of the property.
Another big difference from other insurances you may carry is that title insurance on your real property is a one-time premium. There is no annual premium to keep the policy in effect. It covers your real property as long as you or your heirs own retain an interest in the property.
Let’s go back to our original question. Why do you need title insurance? The easiest answer is to protect what is probably the biggest and most important investment you will ever make.
What sorts of issues are covered? Here’s a short list of some of the more common risks that can cause a loss or encumbrance of title:
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False Impersonation
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Forged Deeds
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Fraud
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Undisclosed or missing heirs
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Deeds by persons purported to be single when actually married
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Liens for unpaid inheritance, income, or estate taxes
What happens if any of these defects or hidden risks are discovered? Title insurance covers the cost of defending any lawsuit against your title as insured. It will also rectify any issues discovered, or pay any losses for the insured. According to experts from Lowered Rates, it is important to understand that these claims can arise from a past event that could not be discovered in a public record search. Therein (oops, legal word) lies the true value of title insurance.
So the answer is simple. You need title insurance because it provides peace of mind in knowing that the property you are buying and the investment you are making is a safe one.
One last bit of legal-speak. Please be aware that this post is designed to be introductory and educational only. It is not to be construed as a statement of duties, liabilities or coverages.
About the Author: Bill Risser is an Assistant Vice President and Branch Manager of the Chicago Title ”“ Gilbert office. You can find him at CT-Gilbert.com and on Twitter at @billrisser, that is, when he’s not on a local golf course with his son, at the movies with his wife, or tending to one of his four fantasy leagues (NFL, MLB, PGA, and NASCAR).
The Phoenix Real Estate Guy was started by Jay Thompson, and I have a little blogging problem... he liked to say...
Great post. Abraham Lincoln lost his house twice because of cloudy title. Majority of property buyers understands the importance of a title search to ensure that they are getting a marketable title at closing. However, as clearly mentioned there are some title problems that cannot be discovered even with the most meticulous title search. There are a lot of potential hazards, which are beyond the scope of a search of title records. This is were the Title Insurance comes in really handy. It can spare you from a lot of headaches…
Great post, Bill. This is the kind of information that must be included in a buyer's packet, yet it is often excluded (not intentionally, of course.). Thanks to your post I will be adding a more clear 'plain english' title insurance information page to my packet.
Good description in simple terms. Title Insurance is definitely a necessity.
Great blog! Many people don't understand the concept of title insurance and this blog will certainly help them. Keep up the good work!
Miami – I did not know the Lincoln story… I've got some homework to do. Thanks!
Maui – I agree that buyers need to get a simple explanation. I do it at the closing, but as an agent, you would be even more of a resource if you provided the info up front… great idea!
Carmen – Thanks for the comment. My goal is to always keep it simple…
Adam – Thanks for the kind words.
There have been a few cases where sellers didn't want the title insurnace to try and keep the closing costs down. They think a simple title "search" is sufficient. I can lead a horse to water, but can't make them drink, but i personally think that title insurance is a MUST on every transaction. Thanks for this info!
Great post. I've been explaining this to investor clients that want to skip this part when they pick up a property to flip. Appreciate the re-enforcement of the necessity for title insurance.
Great post, this is true. We always have to consider that when we are planning to buy any property, to make sure also that the one you got interested in do really exist.
Thanks for information. Good post.
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Thanks for information. Good post.
My recent post Ar?zal? Araçlar Geri Ça?r?l?yor
Informative as always, thank you! Here’s a question.. why is it that title insurance is required each time a home is refinanced? I would think the first policy would cover the homeowner for the term of their ownership. Your blog got me thinking about it, never have asked anyone from title companies if they knew and have always thought it was a bit unfair to the home owner
Great post!
Brian – The Homeowners policy of title insurance remains in effect as long as the owner or heirs own the property. The new policy required when a refinance is done is the ALTA or lenders policy. Each new lender wants their own policy… I hope this helps.
Yes, makes perfect sense.. I know each new lender wants to be covered… My question revolves more around the premise that it should be transferrable so that the home owner doesn’t have to pay for it twice, three time, etc.. But I guess it is what is is. Thanks for the response, enjoy your website and informative posts
Take care
Brian