One of the most misunderstood documents at closing is the policy of title insurance and it is confusing to new homeowners and REALTORS alike. It can be quite expensive, you think massively profitable for the title companies, and since you did a title search for the abstract of title already may wonder WHY the heck you need this stuff?
Well pretty much I have not seen on loans, that you even have a choice so get over that idea. The whole title insurance product evolved out of the secondary market for mortgages. Everyone wants guarantees that there is not something wrong with the chain of title going back 25 years or further and if so that risk is covered. Almost like death and taxes there is title insurance.
One time premium at closing for the homeowner and for the life of owning the property it is title protection.
The six basic reasons for REALTORS to explain to clients and consumers to understand about the "hidden defects" that MIGHT NOT be caught on a title search:
- Forgery - did someone misrepresent themself, not sign who they truly were?
- Competency - there was a mental deficiency or a minor involved
- Capacity - authority of a partner or officer to convey, did a power of attorney expire?
- Status - bankruptcy may affect authority to convey, or Non-Dubable Power of Attorney
- Delivery - was the instrument delivered and recorded
- Improperly indexed document - an error made by the county clerk's office
The title insurance policy, by the way which has a ton of exclusions to protect themselves, and in my opinion make this product EVEN MORE PROFITABLE, is there to defend the homeowners rights with a legal action, private individual vs. private individual or homeowners association.
We may all not understand title insurance, or want it, or think it is too darn expensive and a rip off, but in real estate transactions it is a necessary evil, for just those cases "if something happens."
Explain it or think about it as purely "a cost of doing business.