What is Title Insurance and Do I Need It?

Foreclosure on the American dream
Creative Commons License photo credit: kevindooley

The simple purpose of Title Insurance is to ensure that all changes of building ownership as well as the property it sits on have been legally executed and propertly documented. Once Title Insurance has been granted to a property owner, the fees for any legal issues that may arise at a later date in regards to the property will be covered.

In the United States, anyone with a mortgage is required to purchase Title Insurance for an amount equal to the mortgage. The insurance can be canceled when the loan has been repaid in full or the propety is sold. A Title search is peformed by a title company and the issued insurance protects the lender, not the owner, in cases where a problem with the title was missed or overlooked. Strangely, this may be the only type of insurance that provides coverage for events in the past and not the future. Title coverage is effective beginning on the day it is purchased and ensures that all prior property sales were legitimate where as other types of common insurance provide indemnity for events that may possibly occur in the future.

In the event that Title Insurance is issued and a claim later arises, the property owner will need to work with the insurance company as best they can. While unresolved claims prevent the property owner from entering into any sales agreement regarding the property, the title company will want to take time to investigate the claim and pay out as little money in settlement costs as possible. This process of determining settlement terms, especially those that are questionable, can be quite lengthy and create the potential for a long-term burden on the property owner. For this reason, working with a reputable title company is imperative for all property owners.

The cost of mandatory Title Insurance can vary greatly and a homeowner has the option of shopping around for Title Insurance if costs in their area are high but most borrowers rely on a trusted real estate agent to provide guidance on choosing a reasonably priced and professional title insurance company.