While most insurance policies offer protection for future circumstances, title insurance actually protects you against things that happened in the past. And it’s something you need, not only to complete your home purchase but also to ensure you keep your home.
For a one-time premium, title insurance protects you in the event someone tries to claim ownership to all or part your property—even after you buy it. It could be prior owners, heirs of prior owners and even individuals who performed work on the property and were never paid. If you’re not protected, any one of these claims could threaten your rights as an owner.
“The [title insurance] policy contains information regarding the condition of your ownership rights to a piece of property,” says Kimberly Collins, manager and settlement officer with Cardinal Title Group LLC. “It provides you with a peace of mind to take the risk out of acquiring property whose legal history is unknown to you.”
Even if the title has been examined for defects, the insurance still is necessary, because even a thorough title search will not reveal some defects.
“A few examples are mistakes in the public records, forged deeds and other documents in the chain of title or undisclosed heirs,” Collins says. “Don’t allow something to happen that may deprive you of your right to use the property or sell it.”
Other defects include foreclosure mistakes, fraud, wills in the chain of title—with unnamed heirs coming forward after closing, improperly probated wills or misinterpreted wills—incorrect legal descriptions and public record problems.
In addition to your owner’s insurance policy, your lender will require you to purchase a lender title insurance policy as well. This protects the lender against title defects up to the maximum amount of the loan.
Make sure you’re protected when it comes to your home purchase. For more information, see “Title Insurance: Why a Home Buyer Needs It.”