What Is Title Insurance?
Title insurance shields lenders and buyers from financial hits caused by title defects on a property. Two main types exist:
- Lender’s Title Insurance — Required by lenders, paid for by buyers, and protects the lender.
- Owner’s Title Insurance — Typically seller-funded, it safeguards the buyer’s equity in the property.
Why Is It Necessary?
A clean title is a must for any real estate deal. Title companies dig through public records to unearth any claims, liens, or issues—think unpaid taxes, erroneous surveys, or unresolved building code violations. Title insurance doesn’t cover future mishaps; it’s all about shielding against past problems.
Common Issues Covered:
- Claims of ownership by another party
- Forged or fraudulent documents
- Unrecorded easements
- Restrictive covenants
- Outstanding lawsuits or liens
The Two Types:
- Lender’s Title Insurance: Mandatory for most mortgages, it protects lenders against title defects up to the mortgage amount. It’s a sign that a title search has been done, but it’s not bulletproof.
- Owner’s Title Insurance: Optional but wise, this policy defends the buyer against financial losses due to unforeseen title claims.
The Costs:
Owner’s title insurance runs between $500 and $3,500, depending on your state, provider, and home price. It’s a one-time fee paid at closing. By law (RESPA), sellers can’t force you to use a specific insurer.
Risks Without It:
Skipping title insurance leaves buyers wide open to trouble. Imagine closing on your dream home only to discover the previous owner’s unpaid property taxes. Without insurance, those taxes become your headache. With insurance, you’re covered for as long as you own the property.
How to Buy It:
Your real estate broker plays the lead role for you. He instructs your escrow or closing agent to kick off the process. Though lenders, attorneys, or agents might suggest a provider, you’re always free to shop around. Four big players dominate the U.S. market: Fidelity National, First American, Old Republic, and Stewart Title, alongside regional options. All fees are paid through escrow as part of your transaction.
The Bottom Line:
Title insurance may not feel exciting, but it’s the safety belt of any real estate transaction. Whether you’re buying a home or diving into investments, this one-time cost ensures your biggest investment stays yours.
