The Importance of Title Insurance
By Joshua Brecheen
Land, Real Estate, and our Home’s are usually the biggest investment any of us will ever make.
When you purchase a home, you may be required to contract many kinds of insurance coverage to protect your home or personal property. Sometimes this is flood insurance, which is to insure against massive property damage due to flooding. Most often homeowner’s insurance is required as well, this protects against house-fires, break-ins, and certain weather-related phenomena. A different type of coverage called title insurance protects against the possibility of loss of your title and the loss of your financial investment in your home.
Buying or refinancing a home or even just real estate can be stressful and sometimes downright frustrating. It can also be a wonderful and joyous occasion when the transaction goes smoothly. One thing mostly people do not think about when transacting real estate is asset protection. YOU buy or refinance your home, the bank or “lender” gives YOU the mortgage. The lender holds the deed, but YOU make payments on the mortgage with the assurance that once the mortgage is satisfied, YOU will hold “Title”, or the Deed to the piece of real estate. This sounds straightforward, in theory. Problems arise when title to your real estate is called into question. This is where asset protection through Title Insurance can be a valuable investment.
Title insurance has two sides to it.
- Side one The title company or in some cases attorney, searches property records, typically going back 30 years to ensure against errors such as mistakes in past title searches, heirs of past property owners who could possibly hold title to the property, liens against the property (such as tax liens or even mechanic’s liens), or even previously undischarged mortgages. All of which could negate the seller’s right to sell the real estate; essentially the title search confirms beyond a shadow of a doubt that the seller is free and clear to do so.
- Side two Whomever performs the title search then finds an Insurance Underwriting company. This underwriting company is asked to sell or issue you, as the buyer, an insurance policy. This policy is typically to insure against the problems mentioned above, i.e. fraud, forgery, mistakes in title searches, heirs having previous rights to the property…et al. These policy come in two parts, one part protects the buyer, and the other part protects the lender, who is issuing the mortgage.
At this point, one may wonder, “If the title search is done, why do I need the underwriting portion of title insurance?” The reason you do is because what you do not know may cost you; and you do not know what you do not know. Basically the actual policy itself says,
“You, as the buyer, have ensured the seller has legal right to sell you this property, and that once sold to you, IF something was missed during the last title search, this policy will cover your investment or pay to represent you in court should suit arise.” Title insurance provides investment protection for one of our largest single-time investments. The title insurance company will pay for defense against a suit on the insured, and will perfect/correct the title or pay valid claims against you as title holder. Your home is more than likely your most significant investment. People do not always look at title insurance as a form of asset protection; we typically think “Member FDIC”, establishing trusts, or tax shelters. Having all of our investments adequately protected can mean the difference between the “Have’s” and the “Have Not’s”.