Sunday, January 24, 2010

Why do I Need Title Insurance?

Title insurance is the only type of insurance I can think of which insures you for past events rather than the future events that could happen. Coverage ends on the day the policy is issued and extends backward in time for an indefinite period.  Also, it is an insurance policy that you only pay for it once and the policy is good forever, theoretically.

Why insure history?  The reason is simple.  When you buy a property, you are buying all assets and liabilities associated with the property.  Before you purchased your home, it may have went through several ownership changes, and the land on which it stands went through many more. Title is a historical record of the property’s past.  This past history can include past owners, past use, legal description of the property, any liens against it, etc.  Purchasing a title insurance policy means a title is “clear” and there are no liabilities or unknown ownership issues associated with the property.

With an active title insurance policy, should someone or something show up on the title that was not disclosed or discovered when you bought the property, you are insured and the insurance company would “defend” the title and work to correct any problem.  The problem could include simpler issues such as incorrect signatures on documents, defective recordation, encumbrances, judgments or lien for unpaid taxes.   Or more complex issues could exist such as forgery, fraud, unrecorded easements and access rights, encroachments and undisclosed heirs or previous property owners.  These hidden "defects" are dangerous indeed because you may not learn of them for many months or years. Yet they could force you to spend substantial sums on a legal defense, and still result in the loss of your property.

Title insurance is not mandatory for a property purchase. However, lender’s coverage is usually required if you need a mortgage to make the purchase. Mortgage lenders require such protection for an amount equal to the loan. It lasts until the loan is repaid. As with mortgage insurance, it protects the lender but you pay the premium, which is a single-payment made upfront.  You must purchase a separate owner’s title policy to cover you as an owner for your protection.  It is advisable to do this because the additional cost above the cost of the lender policy is relatively small.

Title insurance is a means of protecting yourself from financial loss in the event that problems develop regarding the rights to ownership of your property. There may be hidden title defects that even the most careful title search will not reveal. In addition to protection from financial loss, title insurance pays the cost of defending against any covered claim. Making sure you have title insurance is a wise decision in your property purchase.