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Why Do I Need Title Insurance?

By
Industry Observer with Swanepoel T3 Group

When you review the total cost of selling or purchasing a home you are sure to have a question about title insurance. Many clients ask if it can be deferred, delayed or ignored. The answer is "no".

In Illinois, a seller must demonstrate clear title to the home in order to legally convey or transfer the property to the buyer. The seller pays for the title insurance policy and the buyer is the beneficiary.

A buyer pays for an additional title insurance policy he if finances the property. A mortgage lender will require a title insurance policy that names the lender as the beneficiary of the insurance. 

If the buyer is paying cash for the property, a single title insurance policy will be drawn up with the buyer as the beneficiary.

What is Title Insurance?

Title insurance protects a home buyer from loss due to "defects of title". A title company researches the ownership chain for a property to show that each time it was transferred (eg sold) the transfer was done legally. A title search also shows whether there are liens on the property that must be paid off before the home can be sold. 

Title Insurance Protects a Home Buyer Against:

  • A previous owner who still has an interest in the title to the home
  • Improper handling of documents
  • Questions of fraud, incompetence, coercion or impersonation
  • An improperly recorded document
  • Liens on the property that exist because of a deed, trust, previous marriage, judgment, tax, assessment, or an outstanding charge by a condominium or homeowners association
  • Liens on the title, either present or future, that arise from material or labor furnished prior to the policy date (unless payment had been agreed upon)
  • Other faults and/or encumbrances

In Illinois, a seller's title insurance is usually ordered by the seller's attorney and included as part of the total closing costs for the sale of the home. The buyer's lender orders a title insurance policy that is usually included in the closing costs for the home.

If you have more questions about title insurance please click here.

Comments (3)

Bill Gillhespy
16 Sunview Blvd - Fort Myers Beach, FL
Fort Myers Beach Realtor, Fort Myers Beach Agent - Homes & Condos

Hi Leslie,  Yours is a very well written review of the need for title insurance.  On an extremely minor point I would add that the title inspection only covers the day of the inspection.  An agent in our office had a situation where an item clouded the title after the actual day of inspection.   Very strange.  Best of 2011 to you !

Jan 05, 2011 04:55 AM
Eric Michael
Remerica Integrity, Realtors®, Northville, MI - Livonia, MI
Metro Detroit Real Estate Professional 734.564.1519

Hi Leslie. That's a great explanation of Title Insurance. I get asked a lot if we can skip it because "I'm the only owner". Happy New Year.

Jan 05, 2011 12:59 PM
Ruthmarie Hicks
Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605 - White Plains, NY

Great explanation of Title Insurance.  I have rarely had anyone question its need. But a couple of times someone did.  Amazing really when you think about it.

Jan 05, 2011 03:45 PM