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Understanding Title Insurance

changes-sign photoTitle insurance.  It’s a mortgage term we’ve all heard, but what exactly is it?  Why is it necessary when purchasing a home?

Simply put, title insurance is another form of insurance for your home.  Just as flood insurance and homeowner’s insurance protects against loss from theft or fire or floods, title insurance protects the title to your home from financial hazards.  When you purchase a home, you’re not purchasing the actual land or the building, you are actually purchasing the title to the property (ie, the right to use and occupy the property).

The title to the property you intend to purchase may already be affected by claims or rights filed by others, and these claims may limit your use of the property and may even cause financial loss.   Therefore, by purchasing title insurance you are authorizing a search of public land records surrounding the property you intend to purchase.  A title agency typically will conduct this search, and will look for any evidence of issues surrounding the title.  For example, there may be a lien against the property due to the seller’s unpaid taxes, pending legal action against the property, or an unknown heir of a previous owner who claims ownership of the property.   Being aware of these issues will enable you to require these issues be addressed before you take title to the property.

Purchasing title insurance will protect against these hazards and defects that may exist in the title, and is purchased at one time, instead of annually.   While this is a quick overview of title insurance, we hope this has shed some light on a common part of a real estate transaction.  Every transaction is different, and while we are unable to give legal, tax or accounting advice, we look forward to helping you navigate your own process with ease and clarity.

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