Title Insurance: Is Title Insurance Required? 

What is title insurance? Title insurance protects a mortgage lender, or the property owner, if a real estate property's title is not accurate. Title companies will pay legal fees, and compensation if necessary, should a property dispute arise.

When title companies offer title insurance, they protect against a wide range of property disputes and real estate infractions. Title companies differ from ordinary insurance companies in that they protect their clients against events that may have happened in the past. Title disputes may occur if the seller had a lien on the property (a promise to pay bills or unpaid taxes when the property was sold). Improperly written deeds, fraud, or previously recorded property claims are all covered by title insurance.

 

Divorce often results in title disputes. The seller may sell property without the consent of their ex-spouse, who may then lay a claim on the property. Other title disputes may involve land use restrictions, fraud, or easement disputes.

 

While some title claims are small problems (such as a neighbor's claim that the property line differs by an inch), others are significantly larger. A sale made under false pretenses can result in a complete loss of home equity when the protection of title insurance is not available.

Ask title companies "what is title insurance," and you'll actually get two answers. Title companies offer two types of title insurance. Lender's insurance protects a mortgage lender against loss in the event of title disputes. The buyer is required to purchase lender's title insurance when buying a house.

 

Owners often believe this title insurance covers them. It does not. Lenders' title insurance only covers the lender against loss. Title companies offer separate insurance policies to owners. Although not required by law, owner's title insurance is the policy that will protect you as the homeowner from title problems.

Before a house sale is finalized, an attorney must perform a title search. The attorney searches for any possible title disputes or claims that may exist on the property. Some people believe this makes the services of title companies meaningless: after all, if there was a problem, wouldn't the lawyer have found it?

 

Lawyers aren't infallible. Fraud, forgery, or simple human error can often be overlooked. Title insurance is very inexpensive when compared to other forms of insurance, and the potential consequences of a title dispute can be very serious and expensive. Insurance, after all, is meant to produce peace of mind.