Why Do I Need Title Insurance When Buying a Home?By Attorney Nemia L. Schulte
QUESTION: I am in the process of purchasing my new home. Do I need to purchase title insurance? Is this something I need? What does it insure?
ANSWER: Before you go into a closing, it's critical to know that your title to the property will be free and clear. In other words, after the closing, you want to have "marketable title" -- title that is free of prior indebtedness or other defects or encumbrances.
Normally, at the closing, the seller gives you, the buyer, a deed which transfers the title to you and warrants your title against claims of other persons. However, prior to the closing, you should have your attorney conduct a thorough title examination of the property. A title examination is basically looking at the legal history of the property. It involves researching the public records to disclose the previous owners of record, prior deeds, mortgages, court judgments, probate proceedings and divorces, foreclosures, tax and construction liens, and other matters that could affect title. You want to make sure that your ability to take clear title is not in jeopardy.
Also, if there are any title defects, you would want the seller to undertake legal proceedings to clear these defects. Some examples of defects include lost or forged deeds; a married signer who represents himself or herself as single; claims of undisclosed heirs; impersonation of another; incorrect legal description; instruments (or legal documents) signed by minors or mentally incompetent persons; and clerical error made at the courthouse.
The reason for title insurance is to secure your claim to the property and protect you against a hidden defect. If you are forced to defend your title in court (because someone else claims that he owns the title to your property), then the insurer agrees to pay the costs. You pay a modest, one-time premium for title insurance. However, the protection you receive continues forever, even after you sell your home. The policy is issued in an amount equal to the purchase price of the property or its market value.
Your lender will insist on title insurance in the amount of the mortgage loan. This type of insurance only protects the lender. A lender's policy or mortgagee's policy does not protect your ownership interest. You must purchase a separate, owner's policy for this.
The owner's title insurance policy is an agreement that the insurer will pay all losses involved in any claim covered by the policy terms. There are two types of coverage:
As you can see, since your ownership rights to the property may be challenged, even after a thorough title examination has been conducted, it would be in your best interest to purchase title insurance not only for the lender, but also for you.
Attorney Nemia L. Schulte practices in Pompano Beach, Fla. Visit her Web site at 123Law.com.