Most insurance is protection in case of a costly event in the future. Think of title insurance as protection of events from that past that could resurface, like defects in the title of the home you just purchased. Title is an owner’s rights to possess and use a particular property. How a home is titled can vary. For example, title can be configured as tenants in common, joint tenants, rights of survivorship, or a life estate. These are all different forms of title that affect possession of property. So what problems might arise that warrant you shelling out money for title insurance?
The worst case scenario with regard to title is that you lose your home to someone else’s claim to the property, or perhaps you’re drained by legal fees protecting your claim to the title. Situations that might arise leading to your loss of title could involve:
∙ Forged documents that don’t legally transfer title to the real estate, forged satisfactions or releases of mortgages.
∙ The fraudulent impersonation of the true owners of the land in title transfer.
∙ Use of expired or fabricated power of attorney to transfer title.
∙ The execution of a deed by someone who didn’t get divorced before remarrying (the original spouse may have rights to the property).
∙ Someone who forgot he got divorced and has inherited property as the surviving spouse.
∙ Someone who forgot that he already sold the property to another purchaser who is now in possession of the property.
∙ Property with good title but with no physical access to the property that is legal.
∙ Execution of the deed by a minor or incompetent person.
∙ Mistakes in public records or legal documents.
∙ Previously undisclosed heirs with claims to the property.
∙ Invalid, suppressed, undisclosed and erroneous interpretations of wills.
∙ Liens for unpaid estate or income taxes.
Any of these issues can threaten your ownership rights. The title company researches the history of title prior to your closing to ensure you have clear title. If the title company misses finding a defect and later someone makes a claim after you’re in the house, a good title insurance policy will cover the consequences of these events as they affect your ownership.
Owner’s title insurance is optional. If you have a mortgage on your home, your lender most likely required you to buy title insurance—but that insurance only covers the lender. One might wonder why they would pay to protect their lender but choose not to protect themselves. You don’t know if you need title insurance until something happens or someone comes forward making a claim, so it’s better to be prepared. The cost of title insurance is anywhere from a few hundred to a couple thousand dollars. Rates are regulated and vary from state to state. Although it can feel like hemorrhaging money when purchasing a home, title insurance protects you from a very costly unknown and is well worth the price should issues arise.