What's the point of Title Insurance?

So many agents run into the question of whether or not it is necessary to have title insurance, so here is some information. 

Title insurance can help provide the home buyer and/or the mortgage lender protection against losses resulting from unknown defects in the title of a property. Unknown defects include outstanding liens or encumbrances which may result in additional costs in the future or even invalidate a home buyer’s right of ownership. It may also invalidate the lender’s security interest in the policy. Title insurance policies will cover the insured party for any covered losses and legal fees that might arise out of such problems.

Title insurance agents/companies search records to develop and document the chain of ownership of a property. If any liens or encumbrances are found, the title company might require that the home buyer take steps to eliminate them before issuing a title policy. Title insurance agents might also hold money in escrow and perform closing services for an additional fee.

How Does Title Insurance Work?

Title insurance policies protect against losses arising from events that occur prior to the date of the policy. This is unlike other types of insurance policies, such as auto or life insurance, which protect against losses resulting from accidents or events that occur afterthe policy is issued.

Who Needs Title Insurance?

•       Lenders —A lender’s policy is issued to a mortgage lender, if it is being financed. The policy provides the lender protection from covered losses arising from any previously unknown defects in the title that have become known only after the insured property has been financed. The lender’s insurance policy will remain in effect until the amount financed has been repaid, the property is resold or until refinancing has occurred.
•         Owners —An owner’s policy is issued to a home buyer, and provides the home buyer protection from covered losses arising from any previously unknown defects in the title that existed at the time of purchase. An owner’s policy remains in effect if you own or maintain an ownership interest in the insured property. In most cases, sellers pay for owner title policies as part of their obligation in the transfer of title to the home buyer.

Info provided by: National Association of Insurance Commisioners & The Center for Insurance Policy and research. 

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