Why is Title Insurance Necessary for your Home Purchase?

By
Real Estate Agent with The Buyers' Counsel

House with a penWhy is Title Insurance Necessary for your Home Purchase?

Home buyers often ask what the significance is of title insurance in the buying process.  You have so many expenses that are coming out of your pocket right now.  Is this one that is particularly worthwhile?

Unlike home owners' insurance which is to cover any problems that may arise in the future - title insurance is there to cover something that may have already occurred.

According to the American Land Title Association (ALTA), about 25 percent of all residential real estate transactions have issues with the title.  Most are resolved prior to closing; however, some claims and challenges can crop up after you have become the new owner. 

Some of these include:

  • Forgery and impersonation
  • Lack of competency, capacity or legal authority of a part
  • Improper recording of deeds
  • Sudden appearance of someone claiming to have a prior interest in the property
  • Mechanic's liens
  • Undisclosed prior mortgage or lien
  • Encumbrances or judgments
  • Erroneous or inadequate legal descriptions

These are situations you may discover after your closing and they could derail your ownership or cost you in legal fees to battle it out in court.

There are two types of title insurance policies that you will be offered at your closing:

  • The Lenders' Policy protects the bank against possible title problems and you will be required to purchase this policy if you are financing your home.   It does not, however, protect your interests. 
  • For your protection you will need to buy an Owner's Policy.   

The price of title insurance varies and correlates with your property's value.  Once it is paid you never have to buy it again. 

When you compare the cost of this protection against the possible hassle and losses you could face without it - the one-time charge is actually a bargain.

 

Copyright 2010 "Why is Title Insurance Necessary for your Home Purchase? "

Written by

Claudette Millette, Broker, Owner, The Buyers' Counsel - (508) 881-6230

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Rainmaker
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Michael Ford
Coldwell Banker Heritage Homes - Marion, AR
Matching Families with Homes

Claudette nice post and have check out what is called enhanced title insrance?

Aug 29, 2010 10:15 AM #1
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Chris Ann Cleland
Long and Foster REALTORS®, Gainesville, VA - Bristow, VA
Associate Broker, Northern VA

Title insurance is so very important. I see all the title issues going on just in the last few years with banks foreclosing so hastily that all the I's are not dotted, nor T's crossed.  I would never recommend any buyer go without an owner's policy.

Aug 29, 2010 10:20 AM #2
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Craig Rutman
Helping people in transition - Cary, NC
Raleigh, Cary, Apex area Realtor

Very nicely explained Claudette. I had no idea that percentage of residential contracts with title issues was so high.

You learn something new every day here in the Rain!

Aug 29, 2010 11:49 AM #3
Rainmaker
403,123
Claudette Millette
The Buyers' Counsel - Ashland, MA
Buyer, Broker - Metrowest Mass

Michael:

Yes, enhanced title insurance provides even more coverage than a typical policy. 

Chris Ann:

During the boom when there was so much activity, so many things fell through the cracks and surfaced later on to be a problem to buyers down the road. I think with all of the short sale and foreclosures taking place much of the banking housekeeping may produce similar problems.  Buyers have to protect themselves against these issues with adequate title insurance.

Craig:

If 25% of buyers have title problems, that should be enough of a red flag to get people to arm themselves with title insurance.

 

Aug 29, 2010 12:33 PM #4
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592,967
Lizette Fitzpatrick
Lizette Realty - Lexington KY - Richmond KY - Lexington, KY
Lizette Realty,Lexington KY MLS - Kentucky Homes -

I've had plenty of clients ask me why it is needed. Your blog post pretty much sums up the need.

Aug 29, 2010 01:00 PM #5
Rainmaker
1,011,936
Steve Loynd
Alpine Lakes Real Estate Inc., - Lincoln, NH
800-926-5653, White Mountains NH

Claudette, This is a terrific explanation of the coverage people often pass on for really short money, at the time of closing.

Aug 29, 2010 01:37 PM #6
Rainmaker
403,123
Claudette Millette
The Buyers' Counsel - Ashland, MA
Buyer, Broker - Metrowest Mass

Lizette:

It is not an easy concept for first time buyers to understand but I always encourage them to get it for their own protection.

Steve:

If buyers think it through they usually realize that the "short money", as you say, is well worth the investment.

Aug 29, 2010 03:54 PM #7
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Claudette Millette

Buyer, Broker - Metrowest Mass
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