What is title insurance, and why do you need it?

Do you legally own a home after you’ve bought it? Can you sell it in a year or 20?

If you have a homeowner title insurance policy, rest assured you do and you can.

There are two kinds of title insurance, lender and owner. As might be expected, lender insurance protects the lender against losses that might occur because of unknown title problems, and guarantees the institution holds the property’s primary lien. Most lenders insist on it.

A homeowner title insurance policy insures the home you bought is indeed yours. It also protects you from personal loss should challenges to your legal ownership arise from the time before purchase. The lender’s policy offers you no such coverage.

Looking for past problems

By the time an owner policy is issued, the title agent has searched public records to discover and address any liens, claims, easements or restrictions on the property. He or she has looked for issues such as:

  • Delinquent tax payments
  • Heirs of previous owners who could assert a claim.
  • Unsatisfied liens stemming from a legal judgment awarded to an individual, business or homeowners association.
  • A lack of legal physical access to the property, such as from a public roadway.

What if there’s trouble in the future?

After any problems are resolved, a policy is issued. Granted, a hidden title “defect” can escape even the most diligent research. Heirs may have been undisclosed or missing. A signature was forged. Someone along the line made a simple human error.

Barring exclusions or exceptions detailed in the policy, you can file a claim to have the underwriting title insurer step in to resolve the issue. In fact, the title insurer may take the matter all the way to court. Your protection extends up to the coverage amount specified by the policy. That amount is most often the market value of the home at the time of purchase.

A homebuyer pays for owner title insurance once, generally as an itemized expense at closing. However, the protection it offers lasts as long as you own the property.

What is title insurance? The answer to that question might be “peace of mind.”

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