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What is Title Insurance?

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By Christopher Coble, Esq. on May 08, 2015 3:59 PM

You spent months looking for the right house at the right price. After making an offer, getting a counteroffer, accepting the offer, inspecting the house, and trying to get a loan, your bank tells you that you need to buy title insurance.

What's title insurance?

Title

Title is the designation of legal ownership. The person who has title of a house has ownership of it. A seller who doesn't have title cannot sell the property.

Title Search

Usually, before a home buying contract is signed and the deal is closed, you or your realtor will hire a title professional to search public records to verify the home's title. They look for problems such as mechanic's liens, tax issues, or ownership issues. If a title search shows that the seller doesn't have clear title to the house, then you wouldn't and shouldn't buy the house.

Title Problems

However, title searches aren't always perfect. Defects in title can show up after a deal has closed. Title problems can arise out of fraud and forgery, conflicting wills, missing heirs, or even unknown owners.

When someone shows up after you've bought a home claiming that the home is theirs, you could face hundreds of thousands of dollars of loss and attorneys fees.

Title Insurance

This is where title insurance comes in handy. Title insurance is a policy that protects you financially from loss due to an undetected title error at the time of your purchase. Title insurance will cover the costs of defending against a competing claim or any losses incurred by a defective title.

There are two types of title insurance policies:

  • Owner's policy - An owner's policy protects you and compensates for your loses.
  • Lender's loan policy - A lender's loan policy protects the loan company that gave you the loan for your home. The loan policy only covers the lender and the amount of the loan. As you pay off your loan, the policy amount reduces accordingly.

While title insurance may seem like an unnecessary added cost on top of the already astronomical price of your new home, buying title insurance may be a wise and necessary protection against any future claims against your title.

If you've bought a home and someone is attacking your title, contact an experienced real estate attorney for help.

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