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What is Title Insurance and Why Do I Need It?

James Hussher

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Title insurance offers a guarantee that the title you or the lender holds to a piece of property is “clear" of liens or other title clouds, as we will explain below.

First off, let's define ‘title" as distinct from “deed". These two documents each establish ownership in a different form. The person who holds the property deed is nominally the owner of the property and can live there, rent it out, build on to or add structures, etc. They are, for all intents and purposes, the “owner" of the property, even though they may still owe on one or more mortgage loans against the property.

A mortgage is a loan to purchase real estate and it is secured by filing a copy of the loan with the county courthouse. The lender has a “lien" against the property until the loan is paid off, and if the property is ever sold, that lender has “first right" to be paid from proceeds of the sale.

Liens can also be lodged against a piece of property in other ways. Perhaps a lawsuit, or bankruptcy. Perhaps a divorcing spouse. Perhaps a contractor who performed work on the property wasn't paid and lodged a “mechanic's lien". Unpaid taxes.

The land itself has been owned for centuries by various individuals, even before the first structure was ever built upon it. Some of those owners may have died and left the property to an heir. There could have been a mistake anywhere along the way in recording an ownership transfer, or a dispute over ownership that was never properly settled. Any of these “ghosts" could come to light decades later and cause you to lose your property to an heir of a previous owner, etc.

For this reason, lenders require Title Insurance when they lend you money to buy a piece of property. This is an insurance policy issued by a Title Insurance company after they have extensively researched the chain of ownership, courthouse records and other public databases to assure themselves that the title is in fact free and clear and no such “ghosts" will present themselves. They guarantee their research by issuance of said title insurance.

The policy will be “good" until you sell. At that time any future buyer will again have to purchase title insurance, to protect against any possible liens you may have incurred during your ownership.

Understand this: your protection is for the time PRIOR to your closing date of purchase of your property. Coverage ends on that date but extends back indefinitely, as far as records may be available. If you incur a new lien by not paying taxes, for example, you can make no claim against your title policy. That lien will have to be paid off from your proceeds of any future sale, and should be, but mistakes do occur, and that is why the next owner will, when they purchase your property, be required to obtain title insurance as well.

There are two policies available, one for the lender, and it has coverage in the amount of the loan they make to you, only. For your additional equity over and above all loans, you need an owners title policy, which is optional. You may wonder why: there are certain problems that can arise that can cause your title to become clouded. What if a scam artist steals your identity and takes out a new second mortgage you know nothing about? What if there is a survey dispute and a neighbor builds on your land, intentionally or unintentionally? If you do not file suit in time, he eventually can acquire actual title to that portion of your land! For this reason, make sure any owners policy you take out will be modern enough in scope to cover you against these risks.

Cost for title search and insurance varies widely from state to state. There are a number of reasons for this. One may be that land records are not modernized and performing a title abstract, as the research is called, is more time-consuming -and prone to omission or error- than in other states which have computerized and streamlined record-keeping of land sales, liens, etc. In some states the policy premium includes the search and in other states you pay separately for that. Some states require an attorney to be involved in every real estate closing, most do not. All these variables affect the cost of title search and policy premium.

Most consumers leave the title insurance purchase to their lender or real estate professional or mortgage broker to handle. It is just a closing cost common to all real estate transactions.

Please visit James at for mortgage needs. Apply online, check current offered rates and loan programs and more!


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