I am buying a house, why do I need title insurance?

Title insurance is an insurance policy that protects against certain losses regarding conditions in the title to land. When you purchase a piece of property you should have a title search performed which will examine the public records for a certain period of time, usually 35-50 years.

Even if a title search has been performed diligently, there are certain issues that affect title that may not be discovered in a title search. These issues may crop up after you have purchased your home. One example is a seller may misrepresent his/her marital status and if his/her spouse did not convey his/her homestead interest in the deed, the spouse may have a claim against the property. If an owner's title insurance policy had been purchased, the title company would hire an attorney to defend the title and/or pay the actual monetary damages up to the amount of the owner's policy purchased.

Other instances where title insurance coverage might be beneficial are 1) a mechanics lien shows up after your deed has been recorded; 2) a name in the chain of title was improperly indexed at the registry of deeds and a property that everyone thought had passed through a probate actually had been conveyed previously to a third party; and 3) a forgery in the chain of title.

If you are borrowing money to purchase your home, most lenders will require that you purchase a lender's policy of title insurance. A lender's policy does not protect you, the homeowner. If you purchase an owner's policy at the same time, most title insurance companies offer a discount on the premium for simultaneously issued owner and lender policies.

In all cases you need to decide if the risk of not having the insurance outweighs the cost of obtaining it. If you were purchasing a home for $300,000 and borrowing $250,000, the average premium for a lender's policy only on a $250,000 loan would be $500.00. Compare this with the average total premium for a simultaneously issued Owner's policy with $300,000 worth of coverage and a Lender's policy would be $850.00. This is a difference of only $350.00.

Title insurance for an Owner's policy is a one-time premium due at the closing. You are covered for as long as you have an interest in the property. Additionally if you convey the property by Warranty Deed to a new owner, you are covered if that owner makes a claim against you.

Title Insurance coverage can also be very helpful if you are in the process of selling your home and a title issue is raised. Often your current title insurance carrier will be willing to insure the property to the new buyer while the title issue is being resolved. If the buyer is willing to accept this coverage, this can allow the closing to occur as planned.

If you are not borrowing money to purchase the home and you are not interested in purchasing an owner's policy of title insurance, it is still very important that you obtain a title abstract and consult with an attorney as to any matters raised in the abstract. It is generally easier and quicker to correct problems in the title before the seller has conveyed the property to you.

Rice Law Office, PLLC is a title agent for several local and national title insurance companies. We would be happy to discuss with you in more depth how title insurance may be of benefit to you and quote a premium for your particular purchase and/or mortgage.