All About Title Insurance

If you’ve ever bought a home, them you’re most likely familiar with the term ‘title insurance.’ But do you know exactly what it is? Simply stated, title insurance protects against possible losses if someone else can claim ownership of your property after closing.

Before you purchased your home, it may have undergone one or more ownership changes, and the land itself likely underwent even more transfers. While properties are typically subjected to a ‘title search’ prior to closing, wherein past deeds, wills and trusts are examined to make sure that the title has passed lawfully from one owner to the next, and an expert examiner also checks for outstanding liens and judgments, it’s always possible that something was missed. For example, someone may have forged a signature during a prior closing, or a legitimate (albeit previously unknown) heir may surface one day to claim rightful ownership of your property.

So now that you know what it is, here are a few more tidbits about the ins and out of title insurance…

Do you have to buy title insurance?
No, not if you’re paying cash for the property. But if you’re borrowing, the lender will almost certainly require you to purchase a policy (called a ‘Loan Policy‘) to protect their interests.

Who does title insurance protect? The Loan Policy covers the lender up to the amount of the mortgage, and it does nothing for you. But you can (and probably should) purchase a policy to protect your own interests, as well. An owner’s policy is typically issued on the full purchase price, and also covers legal fees involved in defending a claim to your title.

How often do you have to pay, and how long does it last? Title insurance is purchased for a one-time fee at closing. The Loan Policy lasts for the term of the mortgage, whereas an owner’s policy typically lasts as long as you or your heirs maintain an interest in the property.

Who pays for title insurance? That depends. It’s usually the buyer, although in some locales the seller pays for it as part of their obligation to provide a good title to the buyer. In our area, it’s customary for the seller to pay for it. And, ufortunately, the buyer pays on the other end of our move. Thus, we’re actually going to get nicked for title insurance twice.

What happens if you refinance? You shouldn’t need a new owner’s policy, as you’re still the owner of the same piece of (insured) property. However, the Loan Policy is terminated when the loan is paid off. Thus, even if you are refinancing through the same lender, you need to purchase a new Loan Policy.

For more details on title insurance, stop by the American Land Title Association’s website. See also the Mortgage Professor’s web page on title insurance.

For more information on moving, check out my Roadmap for a Successful Relocation.

8 Responses to “All About Title Insurance”

  1. Anonymous

    In terms of shopping for the best rate on title insurance, the state of Michigan regulates our rates so the cost of title insurance doesn’t vary much between companies. However, you do want to choose an underwriter with a record of longevity knowing that if a claim arisies they’ll be around to cover it. As the buyer, you should ask for a title policy “without standard exceptions” which is a bit more thorough. I have this verbiage preprinted in my purchase agreements. As the buyer if you are issued only a “commitment for a policy of title insurance” at the closing table, you should ask the title company to “mark up” the commitment and take it with you since many times the actual policy comes several weeks later.

  2. Anonymous

    I refinanced a property and used a lawyer. The cost of settlement attorney’s fee plus title insurance cost was less than the Lawyer’s without title insurance.
    In a different state I bought a condominium for cash. Again the cost of the settlement attorney’s fee (including title search)plus title insurance was less than the attorney’s fee (including title search) but without title insurance.

    There must be some incentive for settlement attorney’s to charge for Title Insurance even at the expense of their fees.

  3. Anonymous

    Where did you find the information about either the buyer/seller customarily paying for title insurance in your state? I looked for quite a while for Colorado, but had a hard time locating the information.

  4. Anonymous

    I think that title insurance is a scam but a necessary evil. For that 1% of the time that you do end up needing it, it’s worth getting.

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