What is Title Insurance? Fundamental Facts Every Home Buyer Must Know

Have you ever thought you lost something important?

Maybe it was your car keys, a precious photo or an important document.
Remember the sick feeling in the pit of your stomach when you realized it wasn't where it was supposed to be and you couldn't immediately find it.

Remember the sweaty hands and racing pulse as you tore the house apart, searching anxiously for the missing item?

What if the object you lost was your house?

Consider the following scenario:  You found your dream home in the neighborhood you have been wanting to move into.  The home is being sold For Sale by Owner and the owner is willing to give you a great deal for a speedy closing.  Hurriedly you put together a closing and forgo getting title insurance and other documents.  Shortly after you move in, the real owners of the home (who had been traveling through Europe for the past month) show up and demand you move out of their house.
If this scenario were real, all of the money that you had spent on the transaction would be lost unless you were able to catch the crooks who impersonated the real homeowners.  The thing that could have prevented this terrible crime would have been title insurance.
What is title insurance? Simply put, Title Insurance is insurance put on a piece of property during the sale of the property to protect the buyer of the property in the event there is a defect in the title.  Defects include fraud, erroneous boundaries and possibly forgotten easements that suddenly come into play. It is estimated by the American Land Title Association that one out of every three titles has some type of defect.

Types of Title Insurance
There are three main types of title insurance, Lender’s policy, Owners Policy and Enhanced Policies.
Lenders Policies are typically required by lenders when there is a mortgage on the property.  These policies typically only cover the lender and their investment should any type of claim be issued against the property.
Owners Policies cover the new owner of the property and their heirs for as long as they own the property.  While the lenders policy only covers the lender for the amount of the loan on the property, the owners policy covers the purchaser for purchase price of the property.  The owners policy covers title defects that occurred and are in place pre-closing.
Enhanced Policies protect the new owner of the property against all of the things that the basic owners policy does, but it often adds post closing elements to the coverage.  Post closing elements may include: building permit violations, restrictive covenant violations, mineral extraction coverage and easements.  For a complete list of possible coverages, make sure to check with the title company in the area you are purchasing the property.

Basic Facts about Title Insurance
While each state may require different types or coverages based on their needs, there are basic elements that are consistent in every state.
The first consideration is that paying for title insurance is a one time event. Rates for title insurance may vary from state to state, but it only needs to be purchased once and the policy will last as long as the owned by the policy holder.  The cost for the policy can be paid for by the buyer or seller of a property and is often a negotiation item during the transaction.
The second item that is consistent in all transactions is that the buyer has the right to select the company to purchase the title insurance from.  The Real Estate Settlement Procedures Act gives home buyer the right to choose whom they want to provide their settlement services. This can be a negotiation item during the transaction as well.

Protecting Your Investment
For many people their home is their biggest investment and it makes sense to do everything they can to protect it.  Title insurance of one of the best low cost purchases that can be made that provides years of protection.
Choosing the right policy is as simple as speaking with your local title company representative about what is common in your area and getting either their basic or enhanced policy.  Often the difference between the two policies is minimal and worth considering the additional expense.
Like other types of insurance, Title Insurance gives you the piece of mind to keep that sick feeling out of the pit of your stomach should something turn up and challenge your ownership.