Title Insurance: Do You Need It?

So it’s time to close on a home and you look at your closing statement, with everything you will have to pay at closing that adds to the price of the home, and you see a line item called title insurance. It looks like a decently sized expense.

You ask if you can do away with it, and you are told no. In fact, not only shouldn’t you get rid of it, you may not even have the option to not pay or buy it.

What’s going on—why is this title insurance so important?

The Life of the Property

As you likely already know, in the lifespan of a piece of property, the property has a lot of things happen to it when it comes to ownership.

It is bought and sold and deeded. It may even be transferred for no money from one owner to the next. It may be encumbered by mortgages, judgments, or taxes, (sometimes, multiple of any of these), some of which may be paid, and others which may not be.

The Title Search

When you buy property, your real estate attorney will do a title search, to see what liens, if any, exist on the property, and to make sure that the “chain of title” is clear—that is, that the property has been legally and properly bought, sold and transferred in the past, therefore ensuring that the person selling you the property now has full legal ownership, and thus, the right to sell the property to you.

But chain of title can be an uncertain thing, and things can and do go wrong and be missed–especially things that were never recorded in the public records in the first place. That’s where title insurance comes in.

What Title Insurance Does

Title insurance protects you from someone coming out of the woodwork and saying they actually owned the property, not the seller, and thus you, as the buyer, could never have legally bought the property and you don’t legally own it.

Or, title insurance can make sure that someone who says they were owed money on the property through a lien can’t just show up and foreclose on their lien or lien the property you just bought.

Owners and Lenders

There are really two kinds of title insurance—lender’s and owner’s (which is you, as the buyer).

The lender needs to know that if you don’t pay, and the lender needs to foreclose, it can legally do so. If you don’t own the property, the lender can’t foreclose on you and foreclosure secures the lender’s loan to you, so it wants to make sure it’s protected by forcing you to buy a lender’s title insurance policy.

If you don’t have a lender, you may save some money because the lender’s part of the insurance policy won’t be required.

Your owner’s policy protects you from other people showing up, suing, and saying that they own the property, and not you. It also protects you from creditors and lienors, including the government, from saying they have a lien on your property from something a prior owner never paid.

We can help you with the closing process from start to finish. Call the West Palm Beach real estate lawyers at The Law Offices of Larry E. Bray today for help with your business litigation or real estate closing needs.

Sources:

alta.org/press/TitleInsuranceOverview.pdf

firstam.com/ownership/title-insurance-policy-types