Title insurance is one of those things that is ordered when a home purchase is being made, but most buyers don’t really know what it is and don’t really want to ask. It’s a charge on your settlement statement and if you ask what it’s for, you’ll usually get the answer: “oh, that’s your title insurance”. Right, yeah. Thanks.
Well, the lords of Europe are said to be “titled” because they literally hold title to land. Here in the New World, when someone purchases real estate, what they are really buying is a title. So, read on Lord Landowner!
Title is a tricky thing. Chances are that someone before you owned title to your property, and though it’s being transferred, it’s really hard to know if it’s truly being transferred, or if the previous owner had a free and clear right to sell the title, or if the title is encumbered by any financial or physical encumbrance.
Most title to real property is held subject to an encumbrance called a lien. A lien can be the mortgage or deed of trust that is used to secure the loan that the owner took out to buy the property. It can also be the result of a court judgement or unpaid taxes. When you buy real estate, you want to be sure that you are aware of any and all liens against the property and that arrangements are made for them to be satisfied before you take title. Some liens will convey with the title and others may not.
There can also be physical encumbrances such as easements. Most property will have public easements that are used by utility companies and such to access the property. These are not uncommon and will be disclosed in your title report. Sometimes, there may be an easement that benefits a neighboring property, such as a shared driveway or access path across the land. A title report will expose such facts so you can better decide what is acceptable, or if you might prefer to purchase something else.
Title insurance is something you purchase at the time of your purchase, one time. There are no ongoing premiums to pay. It is well worth the cost to protect against someone surfacing after your purchase and making a claim of title against your property. Even if a hidden defect in your title comes to light following your sale, your title insurer will negotiate with third parties on behalf of your title and defend against attachments as stated in the policy. Most lenders will require title insurance, but even if you are paying cash, title insurance is a must.
When you purchase your property with a policy of title insurance, you can be sure it’s yours and yours alone. There are different types of title insurance, so if you’re unsure of exactly what is covered, ask your Realtor to go through the highlights of your policy with you.