We are a title insurance company, so it should come as no surprise that we are proponents of title insurance. So it’s understandable that when we see buyers and sellers of properties struggle with understanding what title insurance is and why it’s so important, we feel an obligation to help. Regardless of your role in a property transaction, it benefits you to have a clear understanding of what title insurance does and why, now more than ever, it is critical to the home buying and selling process.
What is Title Insurance?
The first thing to know about title insurance is what exactly a property title is. This is tricky because a title isn’t a tangible object you can hold in your hands; rather, a title is more of a legal concept that says you have the rights and ownership of a property. Conversely, a deed is a legal document in which buyers and sellers sign confirming ownership of the property.
So, titles don’t technically exist so they don’t need to be insured, right? Well, some lenders may say no, but we still think you should get it. Why? To explain this, we need to reevaluate what insurance is. Traditional insurance (car insurance, renter’s insurance, health insurance, etc.) is risk assumption: in other words, you make your monthly payments to the insurance company under the assumption that something will happen so the insurance company can pay the damages. Title insurance, on the other hand, is preventative insurance: it protects your home–likely your largest investment–if an issue or defect arises after you buy your home.
Why is Title Insurance Important?
So, what makes title insurance so important? What specifically does it prevent? Insurance protects you from a number of issues that can affect you as a homeowner. It protects you from any previously unreported liens, forged transfers of ownership rights, unintentional errors in recording or filing documents, and any other title issues that existed prior to the start of your policy.
Title insurance is specifically designed to prevent any legal claims against the property. Claims can be in the form of a lien or levy from a lender, creditor, or even the government.
Some people may believe that title insurance is obsolete because of online databases and other protections. We disagree. The simple truth is that title insurance is still important in 2020. When you buy a house, you get a warranty deed which is a way for the buyer to say ‘this is a good deed, I own this property. I am transferring it to you free of any liens.’ But if, in fact, it wasn’t, people in the 21st century can still have the same problems.
If there are no known liens or any other problems with the property’s title, why is insurance still important? The truth is, while we may want to believe we know everything about the property, there may be issues yet to be found. There could have been a mistake in the ownership history, a simple oversight, even the discovery of a lost heir. There could also be pending lawsuits or legal judgements. All of these issues could affect you and your homeownership even if you were not responsible for any of these issues. Title insurance simply provides you with the peace-of-mind and protections should you need them.